Wealth taxes and similar proposals popping up around the country are giving advisors new factors to consider when building clients' financial plans. Even so, they're just one of many things that must be considered when helping clients choose where to live.
Existing taxes include
Similar proposals include 1% on "taxable wealth" over $10 million proposed in the Minnesota state legislature as well as the
Competing measures are also on the ballot in California. One of them, Proposition 41, would mandate pre-election audits of certain tax-related ballot initiatives, audits of special taxes and ban enforcement of certain taxes, while the other one, Proposition 42, would prohibit new taxes on control or ownership of individually owned assets, retirement holdings and other personal savings, as well as retroactive taxes. It aims to ban the billionaire tax if it receives more votes than the tax, even if the tax passes, too.
If people decide to stop being California residents, "it is not an easy thing to break domicile once you have it, especially in states that are very aggressive about auditing on that issue," said David Heilich, a partner who leads the estate, gift and trust group at international CPA firm Armanino.
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Meanwhile, eight states lowered individual income tax rates this year, according to the Tax Foundation, a nonprofit think tank. They were Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio and Oklahoma.
"If they're folks that are located in multiple places, or maybe now they're empty nesters, and they're not tied to a certain location anymore, having that conversation about 'where do we want to live, and where does it make the most sense financially to live?' becomes more important," Andy Whitehair, a Chicago-based director in the national tax practice of Chicago-based Baker Tilly, an accounting and advisory firm, said in an interview.
Advisors should be aware of potential policy changes, he added. They could be in a better position to help clients with these kinds of decisions than CPAs or lawyers.
"If you're collecting an asset under management fee, and you're meeting with your client a lot more regularly, you're going to maybe find out that, hey, there's a liquidity event on the horizon, maybe next year," Whitehair said. "Financial advisors sometimes are well-positioned to bring up these issues and help start these conversations earlier when it's going to be better from a tax standpoint."
Meanwhile, the court case related to the rollout of New York City's pied-à-terre tax has created flux for clients.
"We have clients that have gotten notices that they are potentially subject to this, and they're like, 'Hey, no!' They feel like they meet one of the exemptions, and they're asking us, 'Hey, do we go through the process of requesting this exemption when, the tax, is it on? Or is it not on?'" Whitehair said. "It creates so many problems."
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Damien Martin, a Chicago-based partner in the private tax and financial services organization at EY, said they're considering the new taxes for many clients. It's prudent to analyze different scenarios that might impact clients, as part of planning, he added. For example, California residents should consider the potential impact of the proposed billionaire tax.
Because California's proposal is on the ballot, the analysis is different than for legislation, but "it's just another factor to consider," Martin said.
