We have the uncertainty created by the continuing COVID-19 pandemic, which still disrupts workplaces, supply chains and the lives of those unfortunate enough to become sick. Uncertainty in the business marketplace has shown both downsides and upsides; some businesses have failed, but others are booming as they take advantage of new opportunities. And we have the uncertainty of tax reform proposals floating around Washington but unable to garner enough votes to become law.
For us at HW&Co., the uncertainty over potential changes in tax law means we have spent hundreds of hours in recent months analyzing all the tax proposals, learning how they might impact our clients and informing clients as to how they should prepare. All for naught, since the proposals died with no legislative action. Some proposals are bound to come back this year, though, so we will do it all over again.
Impact on Baby Boomers
One group that has been impacted the most by today’s uncertainty is members of the Baby Boom generation who are looking to exit their businesses and/or retire.
Part of the reason we have a serious labor force shortage in this country is that the pandemic accelerated the rate at which Boomers are retiring. Boomers leaving the workforce account for slightly more than half of the 4.4 million workers lost in the past two years. Values and expectations around people’s work lives have changed during the pandemic, and many people are concluding they don’t need as much money to retire on as they once thought they did, and they don’t want to die with their boots on. They want to enjoy life.
But many of the assumptions about retiring and selling businesses that Boomers once had have been upended by the economic upheaval of the pandemic. For instance, sky-high valuations and offering prices for small and medium-sized businesses – while a good thing for owners who are selling – have in some cases disrupted succession plans that assumed younger family members would take over the family business, or other buyers would purchase it. Additionally, plans to retire and move to Florida or other Sun Belt states have been put on ice as real estate values have shot up in those regions.
Careful Estate Planning
Of particular concern to business owners is the possibility that rising business valuations and rapid growth of stock market investments will push the value of their estates over the exemption for federal estate taxes, which is currently $24.1 million for married couples filing jointly and $12 million for single taxpayers. Careful estate and tax planning, including shifting assets into trusts, is essential to work around the estate tax.
What all this means is that retirement plans and expectations that have been in place for many years are suddenly seized with uncertainty. Things are changing, and new plans need to be put in place.
We’ve had some challenging conversations with clients in recent months as they have come to grips with the new normal. Facing retirement earlier than anticipated, they are asking tough personal questions like “Where do I want to live?” and “What do I want to do with my time?” Many of these personal goals must be set before we can put together tax and estate plans that help clients get where they want to go.
Looking out on the horizon, we also have another major point of uncertainty looming. The current federal estate tax exclusion, which was set by the Tax Cuts and Jobs Act of 2017, will expire on December 31, 2025. At that time, the exclusion will be cut roughly in half, pushing many more taxpayers into estate tax territory.
We Will Monitor Tax Proposals
For that reason and many others, our professionals will continue to monitor proposals to revamp the federal tax code so we can help our clients understand how they are impacted, maximize the value of their estates and minimize their tax liability. Our goal is always to help clients reach their goals, both business and personal.
Most importantly, we want to help our clients understand what it means to sell a business, retire and detach themselves from their life’s work. We don’t ever want a client to retire or sell a business and then feel they made a mistake.
In an uncertain world, we want our clients to enter their retirement years with certainty and confidence.