What can clients expect following the 2016 election?

The most contentious election in recent memory is over. Whatever your opinion of the results (and I'd venture to say you probably have a very strong opinion), my job is to analyze the impact of the election on the issues that concern my clients, and to recommend steps they may take.

Specific predictions are impossible, of course. However, we can make some educated guesses about what a Trump presidency would look like based on (1) what was said on the campaign trail; and (2) the GOP platform, since it now controls both houses of Congress. Here are some possible scenarios that could impact clients:


Changes to Florida Medicaid Benefits for Long-Term Care?

During the campaign, Trump did not mention the growing long-term care crisis that is bringing more and more middle class families to financial ruin. Clients who do not have long-term care insurance to cover nursing home expenses often turn to Florida Medicaid long-term care benefits, and, with our help, can preserve a significant portion of their assets without going broke. 

Currently, the Centers for Medicare and Medicaid Services set the basic ground rules for Medicaid, with the states having some leeway to fine-tune the rules. Republicans have long advocated replacing this system with "block grants," whereby each state would get a chunk of money, most likely a smaller chunk than they receive now. Each state would then have the freedom to formulate its own eligibility standards and other rules. If this occurs, the potential negative implications for clients could be profound. For example, as a cost-cutting measure, Florida or any state could extend the look-back period beyond the current five years, and/or well spouses of nursing home residents could lose their current financial protections.

Recommendation: 

If you believe you have inadequate protection from long-term care costs, take action without delay.

• Look into long-term care insurance. Many types of policies are now available, other than traditional policies. Read my prior post on these new types of hybrid policies. Call our office and we can put you in touch with someone who can help you select a policy. 
• In the alternative, start doing Medicaid planning, taking the steps necessary to protect your assets. Call my office for assistance.

Medicare to be Reconfigured?

Currently, 57 million seniors receive Medicare benefits. In the months leading up to the election, Trump said little about the program. However, his website now mentions "modernizing" Medicare, with the help of Congress. We do not know what "modernizing" means, but we do know that House Speaker Paul Ryan has long supported dismantling Medicare's current configuration and replacing it with a voucher system. Under that system, seniors would get a subsidy to be used to purchase private health insurance. The new system would apply only to future beneficiaries, not to those already receiving benefits. 

The GOP has also expressed a desire to increase the age of eligibility from 65, to 66 or 67. Rep. Tom Price (R-GA), House Budget Committee chair, recently told reporters that the GOP will likely begin pushing for major cuts to Medicare within the coming months. 

Some experts also expect dismantling of other programs benefiting seniors that were put in place by the Great Society program and by the New Deal. We'll have to wait and see.




Scrap the New Fiduciary Rule for Retirement Accounts?

As I reported in a prior post, beginning in April 2017 a new Department of Labor rule requires those providing financial advice on tax-advantaged retirement accounts such as IRA's and 401k's to adhere to a "fiduciary" standard. Under that standard, the advisor's recommendations must be based solely on the client's best interest. If a more expensive or riskier investment is suggested, the advisor must explain the reasons for the recommendation. This differs from the current rule, whereby an advisor is legally obligated only to steer clients into "suitable" investments - even when the suitable investment is more advantageous for the advisor than for the person being advised. It is precisely such conflicts of interest that the new rule was designed to eliminate. 

The new rule was applauded by consumer advocates, and generally opposed by the financial industry. Trump has made no specific mention of it, but CNBC in October 2016 reported that a key Trump advisor said that the President-elect will likely push for its repeal.

Recommendation:

• If you are receiving advice on your retirement accounts from a broker-dealer, be sure to ask the rationale for any recommendations. Ask if there are other options available that may be better. Do not make hasty decisions.

• Whether or not the fiduciary rule stands, note that a Registered Investment Advisor, unlike a broker-dealer, is legally obligated as a fiduciary and must act in accordance with your best interest. If you would like to consult with one of Karp Financial Services' Registered Investment Advisors, please call 561-626-1130. 

Estate Tax to be Eliminated?

The estate tax put $18 billion in federal coffers in 2015, but affected only about 5,000 estates, according to the Tax Policy Center. Beginning January 1, 2017, an individual may pass $5.49 million tax-free (up from $5.45 million in 2016); a married couple can double that amount. The excess is taxed at 40%. Obviously, only the very wealthiest Americans are impacted by the estate tax. Proponents of the estate tax point to its role in mitigating the accumulation of dynastic wealth. Critics view it as an inherently unfair form of double taxation. Trump falls into the latter group and has specifically called for its elimination.

He has also proposed eliminating the step-up in basis for inherited assets over $10M. If this comes to pass, assets over this amount will be subject to capital gains tax of 20%, based on what the decedent paid for the asset, not on the day-of-death value which is the current rule. It is unclear whether the tax would be levied when the asset is inherited, or only when it is sold. Paul Ryan, however, has said he is in favor of retaining the step-up.

Income Tax Brackets Changing?

Under the President-elect's income tax plan, the current seven income tax brackets would be reduced to three, as follows: 

• For married couples filing jointly with taxable income of up to $75,000; and for single filers with taxable income up to $37,500: 12% marginal tax rate. 

• For married couples filing jointly with taxable income from $75,000 to $225,000; and for single filers with taxable income from $37,500 to $112,500:  25% marginal tax rate. 

• For married couples filing jointly with taxable income of $225,000 or greater; and for single filers with taxable income of $112,500 or above: 33% marginal tax rate.

Contrary to popular belief, not all middle class taxpayers are expected to benefit from Trump's proposed tax plan. The non-partisan Tax Policy Center estimates that nearly 8 million middle class families would pay higher taxes under his proposals, a view shared by the conservative Tax Foundation and American Enterprise Institute.

Additionally, it is unclear as to what tax deductions would be retained or scrapped. 

Recommendation:

At this juncture, there is little actionable information to go on. Stay alert to developments, so that you can take advantage of any possible tax benefits and avoid pitfalls. Consider using a financial advisor to help you stay current, and who can inform you of any benefits and complications of particular investments.  

We will keep our eye on all these issues and report any new developments to you. Keep up with the news by checking this blog, our website, and our Facebook page. You may also subscribe to our monthly e-newsletter here.