Independent Thinking®

Proposed Tax Changes

By Evercore Wealth Management
January 21, 2015

President Obama proposed two tax measures in the State of the Union address on January 20, 2015, that would impact high net worth investors. While it is unlikely that a Republican-dominated Congress will allow these measures to pass in anything like their present forms, it is worth considering their potential impact on individual and family estate plans, as well as the more likely tax changes ahead.

One proposal includes raising the top long-term capital gains and qualified dividend tax rate to 28% from the current 23.8% for couples with annual incomes above $500,000. Since Obama took office in 2009, the maximum capital gains tax rate has already increased by 58.7%, including the 3.8% Medicare surtax on net investment income. It is difficult to imagine Congress agreeing to a further increase.
 
The second, potentially more significant proposal is to eliminate the so-called angel of death tax loophole. Appreciated assets that are currently able to flow to non-charitable heirs would now be subject to capital gains tax on inheritance. For example, a stock purchased for $10 and worth $100 upon death would be taxed on the $90 gain. Transfers to a surviving spouse will remain tax-free but he or she would no longer be able to pass on those assets to children or any other non-charitable beneficiary free of capital gains tax.
 
Some exemptions would apply. These include a personal residence with a gain of up to $250,000 or most other assets with total gains of up to $100,000 (excluding art and collectibles). Also exempt are small, family-owned businesses, which would not incur capital gains tax until they are sold.
 
To us, these proposals appear unlikely to pass a Republican Congress. It is clear, however, that tax reform continues to be a hotly debated topic in Washington, with the majority of the discussion around increased taxes on the wealthy. We will be reviewing developments closely and planning accordingly, in the context of our clients’ individual circumstances. Please see the Winter 2015 issue of Independent Thinking, in which Evercore Wealth Management Partner Julie Krieger discusses a number of wealth transfer strategies.
 
*This article was updated on January 22, 2014 to clarify related wealth planning opportunities.

Important Notice
 
Evercore Wealth Management, LLC (“EWM”) is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. EWM prepared this material for informational purposes only. It is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. This material does not constitute financial, investment, tax or legal advice and should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. EWM may make investment decisions for its clients that are different from or inconsistent with the analysis in this report. EWM obtained this information from multiple sources believed to be reliable as of the date of publication; EWM, however, makes no representations as to the accuracy or completeness of such third party information. EWM has no obligation to update, modify or amend this information or to otherwise notify a reader thereof in the event that any such information becomes outdated, inaccurate, or incomplete. Specific needs of a client must be reviewed and assessed before determining the proper investment objective and asset allocation, which may be adjusted to market circumstances. The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Any recommendations, opinions and analysis herein reflect our judgment at the date of this report and are subject to change as there are changes in relevant economic, legal or political circumstances. Any specific holdings discussed do not represent all of the securities purchased, sold or recommended by EWM, and the reader should not assume that investments in the companies identified and discussed were or will be profitable. Upon request, we will furnish a list of all securities recommended to clients during the past year. Past results are not an indication of future performance. This material does not purport to be a complete description of our investment services. This material may not be sold or redistributed without the prior written consent of EWM. © Copyright 2015

Close