Ping-Pong Planning

Details the travails of personal financial planning for clients in a time of continuing legislative change due to coronavirus.

by Laurie A. Siebert, CPA, CFP, AEP May 27, 2021, 06:30 AM

Tax planning these days feels like playing ping-pong. Last year at this time, I wrote an article on the changes related to required minimum distributions under the December 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act and the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act. Other changes will come when the 2017 Tax Cuts and Jobs Act (TCJA) expires in 2025 and tax law reverts to previous rates. Most of President Joe Biden’s campaign tax proposals have not materialized as of this writing, but discussions regarding changes in estate and income taxation continue and might impact the 2025 sunset on the TCJA. Waiting to plan with your clients is not an option. Financial planning with so many unknowns warrants careful consideration of your recommendations, but there are planning strategies that will continue to be beneficial to clients, particularly around estate planning and income tax planning for retirement accounts.

These strategies include reviewing estate planning documents, asset titling, and beneficiary designations. With the sunset of the TCJA, the federal estate applicable exclusion amount will return to $5 million as adjusted for inflation. The exemption in 2021 is $11.7 million. Planning may be off the radar with the current exemption, but do not be caught unaware if clients are expecting their adviser to monitor this. A careful review of the estate plan may reveal additional work is needed if there could be exposure to federal estate taxes in the future. This could occur under either proposed legislation or the sunset of the exemption. The first part of planning is doing an inventory of the estate situation; then inform your clients of their options. This is applicable under any legislative outcome.

The IRS announced on Nov. 20, 2018, that “individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2019 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.” In essence, they will not claw back the higher exemption used should the exemption be lower upon a future death. Planning may be needed for certain individuals who expect their estate to exceed pre-2018 levels and want to maximize the current exemption through gifting. Irrevocable transfers to lock this in may seem extreme, but if clients have sufficient assets to tap, they may freeze future appreciation on assets transferred and take advantage of some, or all, of the higher exemption today.

Another strategy that may not be on the radar of tax preparers and attorneys is taking advantage of the portability election for married couples at the time of the first passing. When someone passes today and their estate is under the applicable federal exclusion, including prior transfers, a federal estate tax return is not required to be filed. If, at the second spouse’s death, the exemption has reverted to a lower exemption, there could be undue exposure to estate tax for the unused exemption of the predeceased spouse. Filing a federal estate tax return to elect portability of any unused exemption by the first spouse to the surviving spouse is one of the easiest estate planning strategies to implement today. Also, consider that people are living longer and assets do grow over time. Using life insurance may be applicable as well.

For retirement accounts, review with clients the benefits of maximizing traditional tax-deferred options or switching to Roth options, especially if clients feel that there will be higher tax brackets in the future. Many people presume “tax-deferred” is better, and there are situations that make that case. However, with tax rates at some of their lowest levels, consider where the client may be in the future with required minimum distributions for themselves and possibly accelerated benefits from inherited IRAs post SECURE Act. Doing IRA conversions to Roths at lower income tax rates today further reduces the estate by the amount of the income taxes paid today. Factoring the cost of estate and inheritance taxes should be considered in the planning.

Asking clients if there is any expected inheritance is not being nosy; it’s an important part of constructing a comprehensive plan. The next question would be, “Have your parents done any planning?” Generational planning could be more important now with the ability to disclaim inheritances and push assets or tax consequences to the next generation if it makes sense. The key here is that the beneficiary designations need to be aligned with the former generation and one’s ability to disclaim so that the assets go where intended. Clients in the 60-something age range are inheriting from their 80-something parents. With accelerated required minimum distributions on post SECURE Act IRAs, income may skyrocket as well as the ancillary costs of Medicare premium adjustments and net investment income taxes. The option to disclaim to a younger generation provides flexibility in the planning.

While planners may not know what is coming next, the preceding are simple and effective guidelines. However, planners must keep abreast of changes, know how they apply to a client’s unique circumstances, explain the options, and plan for flexibility as much as possible.

Laurie A. Siebert, CPA, CFP, AEP, is an investment adviser representative of Valley National Advisers Inc., with securities offered through Valley National Investments Inc. (Member FINRA, SIPC). She is a member of the Pennsylvania CPA Journal Editorial Board, and she can be reached at

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