As a new Congress takes shape following this week's election, there are several potential tax changes that advisors should keep tabs on. These shifts could affect every client's financial plan, including income tax brackets, deductions and estate planning strategies.
Financial advisors who take a proactive stance can help clients in working toward protecting their wealth and potentially showcase their services.
Here are five actionable steps that clients can consider as they prepare for the upcoming changes:
1. Reassess current tax strategies.
The sunset of the 2017 tax overhaul means that many current tax benefits could roll back. Advisors should evaluate whether clients' existing strategies will still be effective under a new tax framework to avoid future tax burdens.
There's still plenty of time for planning, but it's important to open these conversations to leave enough time to implement strategies.
Begin by reviewing clients' marginal and average tax rates. The marginal rate indicates the client's tax bracket, guiding decisions around optimal income timing, like individual retirement account distributions. The average rate provides a comprehensive view of the client's overall tax situation.
Using both rates, advisors can decide whether realizing income in a low-income year or spreading out gains is wise. Roth conversions can also help lock in current rates and potentially reduce future required minimum distributions.
2. Address upcoming estate tax changes now.
The potential reduction of the estate tax exemption in 2026 could affect high-net-worth clients, especially those nearing or above $7 million in assets. For advisors, proactive steps can help protect clients' legacies and align wealth transfer strategies with their goals.
Revisit clients' estate plans and explore solutions that may include establishing different types of irrevocable trusts to potentially help minimize future estate taxes. Collaborate with estate attorneys to ensure a comprehensive, cohesive approach that aims to address each client's distinct needs.
These conversations reflect a commitment to supporting clients in considering their legacies and managing tax exposure.
