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Q1 2020 Perspective: Financial Household Management

January 27, 2020

Welcome to a new month, a new year, and a new decade of perspective shifting, benefit rich content in all your favorite areas related to retirement planning, investments, estate planning, business succession, and executive compensation planning. 2020 is the year to adopt the clarity of a “20-20 vision” perspective when it comes to your personal and business planning because highly valuable opportunities are scheduled to expire. You can thank Congress both for the opportunity and the upcoming expiration dates. The point is, this is the year of opportunity (for so many reasons!) to get your financial household in order.

There are four main rooms that make up your financial household (see below). How well are your rooms laid out, designed, organized and coordinated right now? No gaps that you might fall through, right? Unlike an actual house with a hole in the floor that anyone can see, it takes an advisor with a holistic and cross-disciplinary perspective to identify the holes that may be hiding in the shadows of your current plan. So, unless we’ve prepared or reviewed your plan, how would you know if you’ll fall through a costly coordination gap the next time an event takes place?

Over your head and atop your financial household is a roof of tax-related planning strategies to protect you from avoidable, unnecessary and sometimes even silly tax penalties. Anytime you pay a tax that you don’t have to, doesn’t that feel like a penalty?!

We want to help you grow more, protect better, and ultimately transfer your personal, farm and business assets in a more efficient and strategic manner. If there is content you want to know more about, let us know! We get nothing out of spending time bringing you this content each quarter other that immense philosophical, emotional and spiritual rewards from your feedback when we are able to benefit you, your family, and your business or your network.

One of the greatest gifts is the gift of time. Right now, that gift is sitting on your front porch and all you have to do is grab it before it disappears.

Proactive Investment & Financial Independence Planning

  • The S&P 500 was up 31.5% last year
  • The S&P 500 is up 419% since the current HALF-cycle starting March 9, 2009
  • Opportunity: have you ever heard the saying “buy-low, sell-high”? Well, it’s high right now which means it time to perform financial independence and income security analysis so you can make proactive strategy adjustments to protect higher levels of retirement income and financial security 
  • If you are retired now (or financially independent enjoying a flexible work as you wish lifestyle) or plan a major work change in the next 10 years, this is critical, the present environment is one gift you can’t replace

 Estate Tax

  • Legislation: Section 11061 of the Tax Cuts and Jobs Act (TCJA), PL 115-97, 131 Stat. 2504 (2017)
    • Amendment to the Internal Revenue Code (IRC) Sec. 2010(C)(3)
  • Current Law:
    • Lifetime estate tax exemption is $11.58 Million per person
    • A married couple can transfer a $23.16 Million worth of assets from the estate-taxable side of their estate to the tax-free side of their estate
  • Current Law With proper planning: the opportunity can balloon to $30 Million of more in assets that can be transferred estate-tax-free for that married couple; or $15 Million+ for an individual
  • Your Current Opportunity: you can make all or a portion of this transfer during your lifetime; you don’t have to die to use it, and if you don’t use the exemption before it expires you lose it!
  • Expiration: the married couple’s ability to make this transfer is scheduled to be reduced by approximately $10 Million at the end of 2025; however, the reduction may be even larger and occur sooner largely depending on the results of the 2020 elections
  • Cost: if the married couple loses the opportunity to transfer $10 Million tax-free and has to pay estate tax (currently 40%), that equates to a $4 Million tax that a couple volunteered to pay by doing nothing

 Don’t pay 2020 capital gains tax until the 2026 tax year (max deferral to April 2027)

  • IRC Sec. 1400Z established in 2017 created the opportunity for you to defer payment on gain you realize in 2020, potentially to the year 2027
  • Strict rules have to be followed, simply investing in an opportunity zone doesn’t mean you qualify for the special tax benefits
  • Investments should always be evaluated on their own merit, exclusive of any potential tax benefits
  • Like any other real estate investment, you can do it on your own, through someone else (e.g. cousin Bubba’s backyard opportunity zone fund), or through a fund established and managed by professionals with track records, audited financials, etc., and there are different levels of risk with each

 Real Estate Capital Gains with No Tax

  • The same legislation that created the deferral of capital gain tax payment to 2027 created an additional incentive to invest in certain low-income areas (defined by the 2010 census and may not be considered low income with 2020 census data)
  • Again, following strict rules along the way, if you hold the investment for a minimum of 10 years you may not have to pay any capital gain tax when you sell

 Business Buy/Sell Planning

  • Chances are business is good (at least better that 2010)
  • Opportunity: going through a comprehensive buy/sell design exercise is much easier when the owners are getting along, and people tend to get along better when the business is doing well (we know there are exceptions)
  • If you are going to be selling, now is a prime time to do the business exit readiness and owner dependency work with us

The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. An investor cannot directly invest in an index. Past performance is no guarantee of future results.