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Tax and wealth management planning for your family and business

Welcome to the 2022 edition of PwC’s guide to tax and wealth planning

PwC’s guide to tax and wealth planning is updated annually to provide you with the latest tax planning information aimed at helping you make the right moves to plan for your family’s future and manage your wealth. The guide covers issues related to investment and insurance planning, and options for giving to charity. A thorough discussion of choices and tax implications relating to estate and gift planning is also included, as well as insights on the myriad tax issues stemming from cross-border activities, including residency nuances. Lastly, the guide covers topics relating to setting up and maintaining a family office.

We continue to keep a close eye on the Biden Administration’s tax policy proposals and will share updates as they happen. You can find our latest insights on these proposals here.

Thank you for your interest in the guide.

Frank Graziano, US Personal Financial Services Leader

Key tax planning considerations for this tax season

We entered 2022 in an environment of uncertainty with the ongoing impacts of the COVID-19 pandemic, the expectation of interest rate increases due to rising inflation, and the ongoing efforts by President Biden to enact some version of the House-passed Build Back Better legislation. In this challenging environment, individuals may want to consider taking action on the following in the current tax year:

Intra-family loans and mortgages

Loaning cash, as opposed to making an outright gift, can result in significant transfer tax savings. While rates have risen in the last six months, they remain low overall, so the loan can be made for little cost.

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Intentionally defective grantor trust (IDGT)

IDGT, also commonly referred to as an intentionally defective irrevocable trust (IDIT), is an irrevocable trust funded by the settlor that is structured as a grantor trust for federal income tax purposes. The grantor can make a gift to the trust, but in the current economic environment, it may make more sense for the grantor to sell property to the trust in return for an installment note bearing interest at the Applicable Federal Rate. Or, if an IDGT is already established and provides for the power to substitute assets, a grantor may consider swapping the trust’s assets with any undervalued assets personally held.

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Grantor retained annuity trust (GRAT)

A GRAT generally is used as a vehicle to transfer the growth of assets in excess of the Section 7520 interest rate to the following generation. Interest rates remain low — the February 2022 interest rate is 1.6% — although they are expected to rise to counter inflation; therefore, the annuity stream would be lower than what would normally be expected. Essentially, this planning technique transfers the asset growth in excess of the Section 7520 rate to the beneficiaries free of transfer taxes, so it may be advantageous to consider this strategy before rates increase.

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Charitable lead trust (CLT)

A CLT can be leveraged as a vehicle to make annual transfers to a charity or multiple charities for a period of time, while leaving the remaining assets of the trust to future generations with minimal transfer tax implications. In essence, the future generations would receive the appreciation of the trust’s assets in excess of the hurdle rate, so the technique may be advantageous to consider now given the expectation that interest rates may rise in the near future.

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Sale of a private annuity

A private annuity sale is a transfer of property in exchange for the unsecured promise to make periodic payments to the transferor for their lifetime. The annuity is computed based on the fair market value of the property conveyed, the transferor’s life expectancy and the applicable federal funds rate at the time of the sale. Given the current federal funds rate, the value of the annuity likely would be lower.

Modification of limitations on charitable contribution deductions

Under the 2020 CARES Act, the modified gross income limitation on the itemized deduction for charitable contributions was increased from 60% to 100% for cash contributions made during calendar year 2020 and 2021 to churches, universities, hospitals or other public charities. Contributions to supporting organizations, private foundations and donor advised funds (DAFs) are specifically excluded. Beginning in 2022, the limit reverts to 60%.

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Additional business related tax changes

Several business-related provisions of the 2017 Tax Cuts & Jobs Act (TCJA) were modified or temporarily suspended by the CARES Act. Significant provisions reverting back to TCJA treatment include the reinstatement of the limitation on excess business losses, the elimination of carrybacks for certain net operating losses, and the Section 163(j) interest deduction limitations, among other changes.

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Converting a traditional IRA to a Roth IRA

When a traditional IRA is converted to a Roth IRA, income tax becomes immediately payable on the value of the converted assets to the extent that there is no tax basis in the assets. Given the market recovery over the past two years, converting to a Roth IRA is now relatively less attractive because the taxes would be based on the current fair market value of the assets held in the IRA. However, for younger individuals with many years until retirement, a conversion may still be attractive.

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Frank Graziano

Frank Graziano

Personal Financial Services Leader, PwC US

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