Tax Management Planning

Tax Management Planning1

Protecting Your Wealth Against Unnecessary Taxation

Taxation can undermine the benefits of the best possible investment strategies, but City National's tax experts create structures that can mitigate the damage to your investments and wealth transfer plan. Rely on our professional’s advice to combat erosion of your working income, investment income, capital gains, gifts to children during your life, and gift to your heirs after you pass.

Myriad tax-planning strategies exist within the federal tax code that promote certain methods of managing or gifting assets, but many high net-worth families fail to leverage even a fraction of them within their overall tax management plan. We're here to help you benefit.

Income Taxation

Business owners are in a unique position to manage the flow of their taxable income, but the income for most employees is static, predictable, and only open to certain amounts of tax mitigation, including maximizing funding of qualified plans such as 401(k)s, and non-qualified retirement plans such as Traditional IRAs. Both 401(k)s and Traditional IRAs (within certain income thresholds) permit a participant to make pre-tax contributions, which reduces taxable income and overall tax burden.

Income tax planning is an ongoing process, which requires predicting income levels at various ages and in different scenarios.

Capital Gains Taxes

Selling valuable assets triggers federal, and possibly state, capital gains tax consequences. We help you mitigate these effects by harvesting capital losses of a like-kind during the tax year, which requires active portfolio management defined by a strategy that correlates your tax needs with your investment policy statement. More sophisticated solutions include implementing a charitable remainder trust.

Children, too, must contend with the consequences of capital gains tax from property they receive while their parents are alive. If you gave assets with a low cost-basis and a high, fair market value, or if you gave assets that were valued low for tax purposes in a prior year, your children will encounter the capital gains tax effect when they sell those assets. Their basis will be your basis, whereas when you give assets at death your children’s basis in their inheritance will be your date of death valuation (meaning little or no capital gains tax effect). Prior tax law dictated that gifting assets away during life made more sense, but circumstances have changed.

Gift Taxes

You don’t actually pay gift tax when you give an asset away unless the gift exceeds your annual “exclusion” amount (currently $14,000 per person, per year) and you have exceeded your lifetime “exemption” amount (currently $5.43 million, adjusted annually for inflation).

If you give up to the annual amount to a person, no gift tax is due and the gift need not be reported (i.e. it is excluded from reporting). Any gifts above the annual exclusion reduce the amount of lifetime exemption you retain during life or at death. If, during life, you make gifts above the annual exclusion greater than the lifetime exemption, you will owe gift tax, which is currently paid at a 40% rate.

Multiple methods enable you to gift assets during life that exceed the annual exclusion, without using any of your lifetime exemption. Loans to defective grantor trusts (DGTs) and grantor retained annuity trusts (GRATs) are two proven strategies high net-worth families implement to contend with gift-tax issues in relation to their overall wealth transfer plan.

Estate Taxes

If you have some or all of your lifetime exemption remaining when you pass away, you may transfer that amount to your heirs free of the federal estate tax. Most high net-worth families allocate their exemption to their children outright, pay any resulting estate tax and pass the after-tax remainder to their children.

Alternatively, sophisticated wealth transfer plans utilize post-death tax planning strategies, such as testamentary charitable lead annuity trusts (TCLAT) and family foundations that mitigate, or eliminate, any resulting estate tax and redirect payments to a family foundation. The amount that would have been lost to taxation funds a trust, the income of which will fund a family foundation, and the remainder (at the end of the trust) will revert in ownership in the hands of your family.

Generation-Skipping Transfer Taxes

If a trust lasts too long, the federal government attempts to tax it again. Delaware Legacy Trusts and other strategies are ideal for mitigating the effects of wealth left in trust for future generations.

Our planning professionals are adept at multiple areas of tax planning and can help set you on the right path.

Investment and Insurance products:
  • Are Not insured by the FDIC or any other federal government agency
  • Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
  • May Lose Value

  1. City National Bank its affiliates and subsidiaries, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented taking into account your own particular circumstances.