Proactive Strategies for HNWI with Rising Tax Rates on The Horizon

Proactive Strategies for HNWI with Rising Tax Rates on The Horizon

In May of 2021, the U.S. Treasury released, “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals.” Also known as the “Green Book,” this document provides a detailed account of the Biden Administration’s proposed tax changes beginning in 2022. With regard to tax planning for HNWI (High Net Worth Individuals), the proposal includes plans to tax the wealthy at higher rates beginning either January 2022 or possibly retroactively to when it was proposed in April 2021.

The administration proposes an increase of 2.9% on the highest income bracket, increasing the rate from 37% to 39.6% for individuals with AGI over $1 million dollars. It also includes a clause to tax carried interest as ordinary income for taxpayers with annual income over $400,000. Although the terms of the proposal will undoubtedly undergo significant changes by the time a formal resolution is passed by the legislature, it’s important for opulent individuals to consider proactive strategies to minimize the impact on their personal wealth.

Getting Ahead of The Changes

While preparing for the 2022 tax changes for the wealthy, take the following proposed terms into account:

– An increase in the income tax rate for joint filers with taxable income over $509,300 and $452,700 for single filers.

– Long-term capital gains and qualified dividends will be taxed at ordinary income rates for individuals with AGI over $1 million.

– Property transfers, whether gifts or upon death, will be taxed as though the property were sold, and the long-term capital gains will be taxed. For individuals in the top income bracket, the gains will be taxed at the higher rate of 39.6%.

– Gifts and transfers made at death will be treated as income realization events. This includes most transfers or appreciated property to and distributions from trusts.

These proposed tax changes need to be considered when making retirement plans or performing HNWI tax planning. The trend appears to be geared toward increasing taxes on the wealthy.

Your Situation is Unique

Now is the time to start tax planning to mitigate the effect of the proposed tax changes on your assets. Your attorney should be able to help protect your wealth now as well as update your estate plan to reflect the potential changes to gifting and transfers. One of the best investment vehicles to achieve these goals are high net worth trusts, like the HYCET Trust offered by Jeffrey M. Verdon Law Group.

As an asset protection attorney, Mr. Verdon has designed this trust specifically for HNWI who are looking to protect their wealth and retain the ability to pass it on to the next generation. Call today if you would like to set up a time to review your tax and estate plan in light of the upcoming changes to the tax laws.

Posted in Asset Protection, Taxes / Laws, Updates.