This week marks a monumental moment in America, as president-elect Joe Biden takes office with the first female vice president, Kamala Harris, by his side. Many things will change with Biden in office, including tax policy, but over the last few years, wealth has been changing hands, and Tara Burek—a CPA and tax partner at Anchin, as well as a member of the firm’s Private Client Group and a member of Anchin’s Women’s Initiative Network—has been seeing many more women come into wealth. Worth sat down with Burek to discuss the changing relationship between women and wealth, what high net worth women need to keep in mind as they do their financial planning and what we all need to know about how tax policy might be changing with Biden at the helm.
To start, what changes have you been seeing when it comes to the relationship between women and wealth?
In the last approximately five years, there’s been an increased level of women inheriting wealth, whether through being widowed or through divorce. At Anchin Private Client, we’re seeing an influx of female clients as a result because of our focus on ultra-high net worth individuals. Women generally like to work with other women, so it’s been an interesting experience and very rewarding on all ends.
We at Worth talk a lot about the wealth gap between men and women, and I’m really curious what you think of that as you see more women inheriting wealth and what that means for women’s progress?
Well, we’ve seen an influx of wealthy female clients in the Private Client Group. The shift in the wealth gap from men to women is more apparent. What we’re seeing is that women are finally taking their seat at the table and are being more assertive about their financial decisions. Historically, we have seen men making the major financial decisions in a relationship, i.e., how to invest their assets, deciding which home(s) to purchase, etc., and women would be in charge of the less significant financial decisions, like deciding how to decorate the home. Largely, a woman’s perspective was not considered beyond this. This is where we have seen a major shift when meeting with our clients. Whether it’s a multi-generational family that was traditionally led by a patriarch, or a single-generation family, we are seeing the major shifts in the role women play in the financial decision-making process. They are being assertive about their needs and what they would like to see happen with their wealth.
To speak to your point, we’re seeing how women are really becoming the drivers in their financial lives and in their financial worlds. This role comes with great responsibility because now they have become the gatekeepers to their legacy and their family’s wealth. Being educated in financial matters is very important so that women can understand the ramifications of the financial decisions they make today.
To switch gears a little bit, obviously we’re about to move into a new administration, with Biden coming to office. So, I’m curious, what do we all—and especially women—need to know about how tax policy might be changing with his administration?
That’s a great question and one that we’re fielding more frequently. When the Senate races in Georgia were decided on January 5, the future of our tax code became clearer. You know the saying, there’s nothing more certain in life than death and taxes? Well, when it comes to a new White House administration, especially when there’s a shift in the majority in the Senate and House, there’s nothing more certain than a change in the tax code. It’s always a major platform item of any presidential candidate’s campaign. Tax reform is a hot topic with most candidates, with the goal being to make taxes more affordable for the middle class.
When it comes to high net worth individuals and women, there are three items that they should be mindful of with the potential tax law changes that are on the horizon that can have significant impact on their tax bills. These three items will impact how they’re spending and saving today versus how they’re planning for the events of tomorrow.
Biden is proposing an increase to the top ordinary tax rate from 37 percent to 39.6 percent on individuals with taxable income over $400,000, which is the majority of our client base at Anchin. He’s also proposing raising long-term capital gains rates from 20 percent to be equal to the ordinary tax rate of 39.6 percent on income above a million dollars. Almost doubling the capital gains rate makes this a dramatic comparison to what recent past administrations have proposed.
The third change that Biden is proposing is a reduction in the current estate tax exemption. In 2021, the exemption is at a historic high of $11.7 million per individual. Biden is proposing rolling this back to what it was over a decade ago to $3.5 million. Further, he is also proposing an increase in the estate tax maximum rate from 40 percent to 45 percent.
Another notable proposal is the repeal of the step-up in basis provision that currently exists. This allows a decedent to transfer appreciated property to their beneficiaries who benefit from the stepped-up, or increased, date of death value as their inherited basis. This usually results in minimal capital gains taxes incurred by the beneficiary upon disposition of the inherited asset. Eliminating the step-up in basis provision will potentially increase income taxes for beneficiaries of estates.
These are aggressive proposals that are on the horizon. Thankfully, in my experience, women like to plan and have been doing so throughout 2020. Once we saw the way the pendulum was swinging in November, many women executed successful estate plans prior to the end of 2020, taking advantage of the increased exemption rate of $11.58 million. Something to note, however, for those who weren’t so quick to execute plans—women included—is that when Biden takes office, he’s going to have a lot on his plate; it’s likely not going to be that changing the tax code is his number one priority. The sooner in 2021 that individuals execute an estate plan if they missed the opportunity in 2020, the better. It’s likely that even with the Senate and the House in Biden’s control, it can take nearly a year to get any meaningful change passed.
What should high net worth women be thinking about and keeping in mind this year, in terms of tax and finance. Is there anything specifically—especially coming out of 2020—that women should be thinking about as they plan?
Women should have a plan for what they want to see happen with their wealth. Many women are very philanthropic, so if they have a charitable organization that is near and dear to them, they may think of incorporating this into their estate plan today. This will ensure that even if the exemption amount does plummet—when it plummets— their philanthropic endeavors are still fulfilled. Making sure that any trust documents and wills are up to date is important especially if a charitable organization is the beneficiary of an estate.
Also, if working on an estate plan, a very useful tool for someone who is charitably inclined is to create something called a charitable remainder trust, where the remainder of the assets contributed to the trust is left to charity at the end of the trust’s term. This helps to achieve two goals: moving assets out of an estate for purposes of wealth preservation and fulfilling charitable giving. This will shelter the wealth from any changes in the estate tax exemption amounts or tax rates.
One additional item to evaluate, and something I am currently working on with many clients, is what assets they want to leave to their children and when they want them to receive those assets. With any amount of wealth, knowing when the next generations can handle inheriting that wealth is an issue of great concern for many women. We periodically review trust agreements to make sure the provisions of these trusts still serve our client’s intentions. Items of importance in these agreements are often at what point do these trusts terminate and what age will the beneficiaries be at that time. The goal is to ensure that children aren’t inheriting wealth at too young an age and that they are able to handle managing the wealth they are set to inherit.
What do you find your high net worth women clients’ biggest financial concerns are moving into 2021, with a new administration? What have you been finding they’re voicing to you that they’re most concerned about?
It’s generally a mixed reaction. I have many women who aren’t overly concerned about changes to the tax code because taxes are not paramount in their worlds. Some are of the opinion that if their income is higher, and thus so are their taxes, they believe they should pay their fair share.
There are also those clients who are a bit more concerned about receiving a higher tax bill, and they’re always looking for strategies to minimize their taxes. Many will look to increase their charitable giving perhaps by funding something called a donor advised fund (DAF). Rather than giving their money to the government because of increased income taxes, they will find a charity or charities with a cause that is of significance to them. By contributing to the DAF, they are able to reduce their tax liability while funding a charity that is of importance to them.
What questions are you finding women are asking you the most right now?
I have many clients who are interested in planning for wealth preservation strategies for future generations. They’ll often ask, “What can we do for our children today that we haven’t already done?” Clients want to know how they can effectively put a plan forth today that will fulfill their goals and the expected goals of their children. What resonates with many is that you can implement a lifestyle sustainability plan to continue to enjoy a standard of living, while still preserving and protecting assets for future generations. Where I find many women struggle is around the concept of giving up complete control of their assets today for the sake of estate planning and being concerned that they will not have enough to live on. It’s my job as an advisor to listen to the concerns of my clients and to tailor a plan that best suits their needs, their wants and everything in between. I spend much of my time developing balanced plans that align with the current and future financial goals of my clients.
So lastly, what financial advice do you have for women as we move into 2021?
As more women come into wealth on a more frequent basis, it is very important that they select the right team of advisors from the start. It is also important that they be able to recognize some red flags when they’re talking to advisors, especially if they’re married. When interviewing advisors, it’s always a good idea to pay attention to how you feel when speaking to them. You will want to choose an advisor who is going to make you feel comfortable and who’s going to listen to and hear you. So, if you’re a woman who is meeting with an advisor with your husband and the advisor is only speaking to your husband, for example, that might not be the right fit for you. There’s a lot of assumptions being made by that advisor that are evident by who they are gearing their conversations towards. I am a huge proponent of empowering women and encourage all women to be in the driver’s seat when it comes to their finances. An advisor that does not align with empowering a woman to make financial decisions for herself may not be the best fit. I encourage people, particularly women, to be very critical of the advisors they meet with and to ask hard questions. At the end of the day, they need to be comfortable with who they inevitably decide to hire as an advisor because these are going to be the people alongside them through some of their most important decisions in life.