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    2022: Taking Greater Control of an Uncertain Future

    2022: Taking Greater Control of an Uncertain Future

    Financial Planning

    2021 seemed to mark a return to relative normalcy, at least until the term “Delta Variant” crept into our language. Still, despite the fear of relapse and prolonged pandemic, 2021 offered some reasons for optimism:

    • Vaccines gave a literal shot in the arm to the economy. Many jobs that were thought to be lost made a return, although the nature of work may be changing as employers and employees come to the realization that physical presence in a workplace may not always be necessary.
    • Stocks have continued to rise to record highs.
    • Interest rates have remained low as central banks around the world have maintained an accommodative policy.

    Given this ambivalent state of hope and apprehension, how can you plan for the future financially? Here are some possibilities to think about and discuss with your attorney, accountant, and Lenox Advisor:


    Possible Legislation

    Last year at this time, we anticipated a divided Congress, no matter who won the Presidential election. This year, the division still appears to be the rule, despite the fact that one party controls the Senate, House, and Presidency. Some of the following proposals may never reach the President’s desk, but all of them warrant reflection about possible actions you might consider taking.

    Income Tax

    • The highest marginal tax rate, which is now 37%, may return to its previous 39.6% level and be applied in income over $400,000 for single earners and $450,000 for married couples.
    • Medicare may be expanded to offer coverage for dental, vision, and hearing services. In addition, tax credits for purchasing health insurance through may be increased.
    • The Children’s Tax Credit may be increased as follows:
      • $2,000 to $3,000 per child between the ages of 6 and 17.
      • $2,000 to $3,600 per child under the age of 6.
      • Tax credits can be used to reduce tax liability and even possibly receive a refund. All working families will receive full credit if couples earn less than $150,000 annually or single parents earn less than $112,500.
    • The corporate income tax rate maximum may be raised from 21% to 26.5%.
    • Back Door Roth Conversions and Mega Back Door Roth Conversions might be eliminated in 2022 and beyond.
    • Changes to the ability of IRA accounts to hold investments that require certain qualifications, such as “accredited investor status,” could occur.
    • IRS audits may become more frequent with a possible increase in audit budgets. In addition, IRS enforcement may become more stringent with more reporting required from third-party custodians.
    • What has not made the proposal, however, remains pending in Congress:
      • The SALT (State and Local Tax) deduction limitation may be raised from its current $10,000 limit or even removed entirely.
      • Social Security tax may be raised for workers earning more than $400,000.


    Capital Gains Tax

    • The maximum capital gains rate may increase to 25% for single earners making more than $400,000 and married earning more than $450,000.
    • Net Investment Income Tax (NIIT), which is currently at 3.8%, may apply to not only capital gains but also pass-through business income for taxpayers earning more than $400,000.
    • New wash sale rules for cryptocurrencies will be applied.


    Estate and Gift Taxes

    • Lifetime Exemption to be reduced from 2021 level of $11.7 million per person to 2010 levels of $5 million per person, adjusted for inflation. We expect this to be around $6 million beginning January 1, 2022.
    • Irrevocable grantor trusts would be included in the decedent’s estate when calculating estate taxes. Currently, these trusts are considered outside one’s estate at death.
    • Future sales or exchanges between the grantor and an irrevocable grantor trust would be a taxable event. At present, the grantor of such a trust may, if allowed in the trust document, swap assets of equal value between themselves and the trust and with it not being considered a sale with capital gains tax consequences.
    • Valuation discounts for the “non-business assets” of an entity will end after the bill is passed. This will affect the attractiveness of using Family LLCs owning publicly traded securities as an estate planning tool.

    What’s not in the current proposal:

    Earlier ideas that would have eliminated the step-up in basis at death, taxed capital gains at death, limited annual exclusion gifts, taxed unrealized gains inside trusts at specified intervals, and raised maximum estate tax rate above the current 40%, appear to have been excluded, at least for now.


    Tax Planning Strategies to Consider

    For Income and Capital Gains Taxes:

    • Convert Your Traditional IRA to a Roth IRA

    You’ll pay taxes on the amount converted, but you’ll be able to withdraw assets at retirement with no tax liability. If you expect your income to be higher next year, this year might be the time to pay tax on a Roth conversion. Under the current proposal, the ability to convert the non-deductible portion of a traditional IRA will be removed in 2022. This makes it highly advantageous to make a conversion before the end of the year.

    • Capital Gains

    The proposed effective date for the new higher capital gains rate for high earners was September 13, 2021. Selling assets with capital gains now would not lock in a lower rate.

    • Adjust Tax Withholding

    Be sure you understand which tax bracket you’re in for both income and capital gains. Your CPA can help you to adjust your paycheck withholdings.

    • Maximize Your Retirement Plan Contributions

    If you participate in a 401(k), make sure you maximize your 2021 contribution before the end of the year ($19,500 Regular Contribution + $6,500 catch-up contribution for those age 50 or older). While some IRA structures, such as an SEP IRA, provide additional time to make 2021 contributions beyond December 31, now is an excellent time to ask your CPA what your 2021 contribution can be. For those who have started new businesses and may not have set up a retirement plan, we recommend you consult with your Lenox team to determine if a retirement plan makes sense and, if so, what type.

    • Harvest Losses for Tax Purposes

    By now, your accountant should have a good idea of the gains and losses you have realized in your portfolio this year. If you are in a net realized gain position, you may be able to sell some securities with unrealized losses to further reduce your capital gains tax for the year. If you are in a loss position, you can take the opportunity to rebalance your portfolio and sell some winners without incurring taxes for this year. Be careful to avoid a “wash sale” — buying the same security 30 days before or after selling it at a loss.

    • Consider Contributing to a Donor-Advised Fund

    Gifts of appreciated securities held longer than one year are deductible at their fair market value up to 30% of your Adjusted Gross Income. We recommend making such gifts well in advance of December 31 to ensure they are counted toward this year.

    Finally, talk with your accountant about whether it might make sense to push deductions into next year and include income items in 2021. Doing so may enable you to reduce your tax liability if any of these legislative measures are actually enacted.


    For Estate Tax

    Given the possible reduction in the federal lifetime estate and gift tax exclusion:

    • Consider Making Lifetime Gifts while the Current Exemption is in Force

    If the exemption is reduced to a level that is lower than the gifts you made, those gifts will be grandfathered. For more information, see

    • Consider Making Annual Outright Gifts

    Each person can gift up to $15,000 per year to as many individuals as they want without any gift or estate tax consequences. It may make sense to gift a highly appreciated asset to an individual who can sell it in a lower capital gains tax bracket. Outright gifts do not come with the restrictions (good and bad) that come with more complex strategies.

    • Incorporate Trusts in Your Estate Plan

    ​Trusts are an integral component of many estate plans because they enable affluent clients to achieve such objectives as:

    • Reducing estate tax.
    • Ensuring that assets are managed effectively and distributed according to the trust creator’s wishes.
    • Providing for family members who may lack the maturity and judgment of financial experience to manage substantial assets on their own.
    • Protecting assets from such wealth eroders as lawsuits and divorce.

    The following strategies illustrate the versatility of trusts and how various types of trusts might have a place in your estate plan:

    • Grantor Retained Annuity Trust (GRAT)

    Contribute assets to a trust that pays its grantor an annuity for a set period of time. The initial amount contributed to the trust, plus interest, is returned to the grantor, leaving the remaining appreciation outside of their estate. This is a great strategy for assets expected to appreciate rapidly in the near future. Structured properly, these trusts do not use any of the lifetime gifting exemptions described earlier.

    • Spousal Lifetime Access Trust (SLAT)

    Gift assets to a trust where the spouse is the primary beneficiary. The gifter removes the assets from the taxable estate, but the spouse will be able to use those assets if ever needed during their lifetime. Each spouse can create and fund a SLAT for the benefit of the other.

    • Charitable Lead Annuity Trust (CLAT)

    Contribute assets to a trust that pays to charity for a number of years with the remainder being left for the heirs. Grantor gets an immediate charitable tax deduction and makes a smaller gift for estate tax purposes to heirs.

    • Qualified Personal Residence Trust (QPRT)

    Gift a residence to a trust while retaining the right to use the property for a set term of time. At the end of the term years, the value of the gift will be less than the current value of the property and use less of the lifetime exclusion.

    If you have considered or are considering these types of trusts, we highly recommend reviewing these documents with your estate planning team to ensure the new rules do not adversely affect you.

    The Guidance to Navigate an Uncertain Environment 

    Clearly, the proposed legislation outlined here will have a profound effect on the financial decisions you make in 2022 and the years beyond… provided it is enacted.

    At Lenox Advisors, we are committed to providing you with the guidance to meet these challenges and make informed decisions. Please contact us with your questions or concerns and watch for updates and analysis as greater clarity emerges.

    The information provided is not written or intended as specific tax or legal advice. Lenox Advisors, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Lenox Advisors, Inc. (Lenox) is a wholly owned subsidiary of NFP Corp. (NFP), a financial services holding company, New York, NY. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC and NFP Corp. Member SIPC. 90 Park Ave, 17th Floor, New York, NY 10016, 212.536.6000. Services will be referred by qualified representatives of MML Investors Services, LLC (MMLIS). CRN202409-860933.