A wealth planning imperative

Position now before interest rates rise.

Dec 09, 2013 | Our Perspectives Archive

“Investors will want to take extra care this year to revisit the tax implications of their investments and outstanding loans,” says Thomas McGraw, tax specialist in the Advice Lab, J.P. Morgan Private Bank’s in-house think tank for personal planning. 

“Taxpayers may want to consider planning opportunities to position themselves before year-end and heading into 2014,” notes Mr. McGraw.

Position for a changing rate environment
At J.P. Morgan, we believe that 2014 will pose a gradual rising rate environment, making it an important time to assess potential exposure to fixed income investments as well as ensure you are taking advantage of current low borrowing rates.

While certain fixed income instruments may have outperformed equities in recent years, they now offer very low yields. As a result, they may not keep up with the rate of inflation and could result in a loss of principal if rates move up.

“We are advising clients to revisit their asset allocation and make sure they are building in diversification away from directional bond markets,” says Solita Marcelli, Global Head of Fixed Income. 

Higher taxes, new opportunities 
For U.S. taxpayers, new legislation that went into effect in 2013 means they could be paying more on the income earned this year–especially if they are high earners. The higher tax rate environment makes it an important time to rethink your approach to investment deferrals, deductions and structuring, as these may all open avenues for potential savings.

For same-sex couples who pay taxes in the United States, there is potential to receive refunds or credit adjustments for previous years’ income tax filings, gift tax returns and taxes paid on the estate of a deceased spouse.

Global considerations
Outside the United States, there are many reasons to consider your tax planning, as the global compliance environment is becoming more stringent. 

“This is going to require taxpayers to be more attentive to their tax affairs and review them regularly, particularly at the end of the tax year when rules tend to be in flux,” notes Gavin Leckie, head of the J.P. Morgan Cross Border Advice Team. “This is especially the case with families in multiple jurisdictions when multiple tax regimes are in play, so it’s important to stay on top of things since changes in one jurisdiction may affect taxes in another.” 

Donate appreciated assets
Markets overall did well in 2013, and you may have assets that appreciated. Gifting those assets to charitable organizations can help reduce U.S. income taxes and alleviate the need to pay capital gains tax on the asset’s appreciation. 

Gifting to others
“In the United States in particular, this is an extremely favorable tax environment for gift- and estate-tax planning, as this is the first time in about a decade when U.S. transfer tax laws are expected to remain the same for the foreseeable future,” says Mr. McGraw. “The long-term difference that planning might make for your heirs can be considerable, particularly if you gift assets in trust, where they have the opportunity to grow and compound transfer tax free.”

To learn more, please contact us and a J.P. Morgan representative will be in touch with you.


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