This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

“Your best client is another financial advisor’s best prospect”

As a financial advisor, I had three primary concerns:

  1. Losing my best client
  2. Losing my second best client
  3. Losing my third best client

Those three clients and their families represented an unusually large percentage of my gross production and potentially losing them never stopped being a nagging uneasiness.

This year, Senator Bernie Sanders proposed the “For the 99.8 Percent Act” which would impose significant increases in estate tax. According to the Washington Post and Sanders’ staff, the plan would raise $2.2 trillion from 588 billionaires, but over an unknown period because it would only take effect once they die. Over the next decade, the tax would raise $315 billion, policy aides said.

At the same time, Republicans introduced a bill to eliminate the estate tax.

For purposes of this blog post, we are not taking the side of Senator Sanders or the Republicans. We are taking the side of your best clients in this cross fire of tax sentiment, because when I examine this bill, it is clear to me that it does not only affect the 588 billionaires target, but your wealthy clients as well.

Look at some of the proposal’s provisions according to Senator Sander’s website.

  • Exempts the first $3.5 million of an individual’s estate from the estate tax. This much less than the current $11.4 million in 2019 ($22.8 million for couple) or the $5 million plus per person that the estate tax sunsets to in 2026.
  • Establishes a new progressive estate tax rate structure as follows:
✓45 percent on the value of an estate between $3.5 million and $10 million.
✓ 50 percent for the value of an estate between $10 million and $50 million.
✓ 55 percent for the value of an estate in excess of $50 million.
✓ 77 percent for the value of an estate in excess of $1 billion
  • Sharply limit the annual exclusion from the gift tax.
  • Ends tax breaks for dynasty trusts.
  • Strengthen the “generation-skipping tax,” which is designed to prevent avoidance of estate and gift taxes, by applying it with no exclusion to any trust set up to last more than 50 years.
  • Prevent wealthy families from avoiding gifts taxes by paying income taxes on earnings generated by assets in “grantor trusts.”
  • Closes other loopholes in the estate and gift tax. One of these loopholes involves “valuation discounts,” restrictions placed on interests in family businesses which are claimed, falsely, to reduce the value of the estate.

Does this sound like a tax bill that will affect billionaires only or a bill that will significantly affect your larger clients’ families as well?

This is why you need to take action immediately.

Whether Washington enacts this bill is not at issue.

What is clear is that while the super-rich are targets for tax revenue, it may affect your wealthy clients as well.

What is at issue is that there are a variety of strategies you need to present to your best clients to take advantage of the estate laws as they are currently stand. As an example, last November, IRS said that they would not claw back taxes on gifts made at today’s $11.4 million exclusion rate.

Have you spoken to your large clients about strategies to take advantage of these higher exceptions today, before sunset provisions or new legislation lowers them? Have you spoken to them about other strategies that have grandfather potential if the tax landscape changes.

The point is, if you do not have conversations with your best clients about possible strategies to preserve higher tax advantages that are available today, another financial advisor who has your client in their sights as one of their largest prospects might.

Let Dunham and Dunham Trust Company help you have these conversations.

Complete the consultation form by clicking here to set an appointment to discuss your three largest clients to see if there are conversations that need to be occurring with them now.

Winter may be coming, but your client has allies with you and your partnership with Dunham.

Please feel free to forward this blog to the Financial Advisors you feel may benefit from it.