Investment Location Planning: Tax, Estate and Asset Protection Considerations

NAEPC Journal of Estate and Tax Planning

May 2020

Introduction

Asset location (which “investment bucket” a particular asset is held in) deserves more attention than ever in the current planning environment because more clients are focused on income tax planning considerations when pursuing investment planning, estate planning, and asset protection planning. Due to the current increase in the federal estate tax exemption, many clients are not as focused on estate tax planning. While using exemptions is important for many clients, this planning is just not as high on the list for many of our clients. Nonetheless, practitioners should remind clients to consider using exemptions before they decline in 2026 or perhaps earlier if there is a change in administrations in Washington. Due to the changes in the income tax laws under the Tax Cuts and Jobs Act (the “2017 Tax Act”), many clients have lost the benefit of itemized deductions, including advisory fees, which highlights the need to evaluate “investment buckets” from the perspective of both tax efficiency and asset preservation. Planning advice that encompasses asset location decisions provides a concrete benefit that clients can enjoy now, as opposed to the type of planning advice with a longer time horizon before the client can benefit.

As we know, from a behavioral science perspective, a current benefit is valued more by clients; a dollar saved is a dollar earned.

All advisers within a client team should work to develop a coherent holistic investment strategy for the client’s unique circumstances and goals. From asset managers who can advise on possible investment vehicles, to accountants who can assess these vehicles for optimal tax treatment and suggest income tax planning steps, to attorneys who can draft the appropriate trust documents and language to create tax advantaged buckets (e.g. a non-grantor trust) , to the private banker who can orchestrate the goals and strategies for the client, a collaborative team with diverse expertise committed to broad based planning including asset location will allow clients to maximize their goals and leverage each expert’s knowledge and skills

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