Perspective | Vol. 1 Issue 1 | Fall 2021

Perspective | Vol. 1 Issue 1 | Fall 2021

VOLUME 1 | FALL 202 1

Contents

TAX PLANNING Taxes, What We Know for Now – Summary of the September 2021 House Ways and Means Committee Tax Proposal

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Letter from the Editor

Hello friends, Welcome to the first issue of our digital newsletter, Perspective ! As promised earlier this year, we are delivering our expertise and insights on a range of subject matter that relates to those who matter the most to us—our clients. We are very excited to present this inaugural issue. One of our core values is ensuring that we share valuable, forward-thinking knowledge spanning different areas of wealth management. In this issue, we will be discussing “Taxes, What We Know for Now – Summary of the September 2021 House Ways and Means,” “Our Investment Process – A Primer,” and other topics including Estate Planning, Social Security Benefits, Wealth and Family Dynamics, and Cryptocurrency. These articles will be informative and will highlight what we have been doing behind the scenes here at Spectrum as of late. We will also put a special focus on lifestyle topics and other narratives in the “Spectrum Spotlight” column. We hope you enjoy this issue and find the content intriguing and meaningful.

INVESTING Our Investment Process – A Primer

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SPECTRUM SPOTLIGHT: Q+A AND UPCOMING PHILANTHROPY Cryptocurrency and Meme Stocks Explained

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ESTATE PLANNING An Overview of Social Security Retirement Benefits and the Application Process GENERATIONAL WEALTH Wealth and Family: How Your Wealth Advisor Can Help with Family Dynamics

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All the best,

WOMEN AND WEALTH Advanced Estate Planning Concepts for Women

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Leslie Thompson CFA ® , CPA, CDFA™ Editor and Chief Investment Officer Co-Founder

Bob Phillips CPA, CFP ® , CFA ® President Co-Founder

GENERATIONAL WEALTH Challenges Wealthy Kids Face

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As you know, at Spectrum, we believe knowledge is power. To provide clarity and ensure that you are better informed about the House Ways and Means Committee’s most recent tax proposal, we have outlined the tax changes that may potentially impact our clients’ financial planning in the future. Corporations The top corporate tax rate would increase from 21% to 26.5% (raises $540billion) Individual Taxpayers Income tax bracket rate increases (raises $170billion) Increases the top rate from 37% to 39.6% in 2022 for individuals with a taxable income of $400,000 and $450,000 for married couples that file taxes jointly. The proposal brings back the “marriage penalty.” - Trusts & estates with incomes over $12,500 will be subjected to the 39.6% bracket. - Effective date: January 1, 2022 Long-Term Capital Gains rate increases (raises $123billion) Changes the 20% current top rate to 25% for capital gains and qualified dividends - The effective date for 2021: Long-Term Capital Gains recognized after September 13, 2021. Long-Term Capital Gains recognized on or before that date will be netted with losses recognized on or before that date and remain subject to the 20% top rate. - Additionally, the 20% top rate will continue to apply if the gain results from a transaction entered into on or before September 13 and is not materially modified. Expands the Net Investment Income Tax (raises $252billion) To capture more income to cover net income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer). By closing this gap, all income, be it from wages (currently subject to 3.8% HI tax), investments

(currently subject to 3.8% net investment income tax), or earnings from passthrough businesses, will be subject to the same amount of tax, for those with higher incomes. Roth IRA (raises $4billion) Roth conversions would be limited to those individual taxpayers with less than $400,000 of income and taxpayers that are married filing jointly with less than $450,000 of income. After-tax contributions made to a Traditional IRA or 401(k) would no longer be eligible for conversion to a Roth IRA. Many high-net-worth clients that are not eligible for a Roth contribution utilize this technique, commonly referred to as a “backdoor Roth IRA” to fund a Roth IRA. Additional restrictions would be included for individuals with retirement account balances exceeding $10,000,000 and income exceeding the Roth conversion limits outlined above. No additional contributions could be made to IRAs. Additionally, a distribution of 50% of the amount by which their retirement account balance exceeds $10,000,000 must be taken each year. - If retirement account balances exceed $20,000,000 and an individual has a Roth IRA or Roth Retirement Plan, the individual must also take a distribution from their Roth account balance to bring the account balance below $20,000,000. The effective date for the changes proposed above would be for tax years beginning after December 31, 2021. Estate Taxes Reverses the 2017 Tax Act increases made to gift, estate, and generation-skipping transfer (GST) tax exemptions effective as of January 1, 2022 (raises $50billion). For 2021, the exemptions remain at $11,700,000.

TAX PLANNING

Taxes, What We Know for Now – Summary of the September 2021 House Ways and Means Committee Tax Proposal

Bob Phillips CPA, CFP ® , CFA ® President Co-Founder

In early September, House Democrats laid out their draft of proposed tax changes for legislation to implement in the 2021 – 2022 federal budget. Some of the changes have been discussed heavily in the past as part of President Biden's foundation to fund the "American Families Plan." Yet, several prospective tax changes were recently added to the House Ways and Means Committee proposal that could reduce current wealth and estate planning options.

The proposed tax increases targets corporations, high-income business owners, estate taxes, individual income taxes for high earners, long-term capital gains, and Roth IRAs. These increases are being pushed in hopes of expanding civil aid available to Americans and work towards combat ing climate change. This includes, but is not limited to, generating more than $2 trillion to go toward expanding Medicare benefits, supporting investment in and deployment of clean energy, investing in tax fairness by increasing the size and efficiency of the Internal Revenue Service (IRS), and lowering prescription costs by allowing the HHS Secretary to negotiate for lower drug prices. 1

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Tax Planning continued...

The Joint Committee on Taxation has estimated that the 2022 gift, estate, and GST exemptions would be approximately $6,020,000. Those wishing to utilize the higher exemptions should do so before the end of the year. No changes to the income tax rules that allow unrealized capital gains to go untaxed at death (the “step-up in basis” at death remains). Valuation discounts would be disallowed, after the enactment date, for the transfer of interests in an entity that owns passive assets not used in an active trade or business (raises $20billion). Passive or “nonbusiness assets” described above would be treated and valued as if the asset was transferred directly to the transferee and will ignore the implied entity level transfer. For example, a transfer of 35% of a person’s Limited Liability Company (LLC) units of an LLC holding “nonbusiness assets” would be treated as a transfer of 35% of the assets of the LLC, and no valuation discounts would apply. Grantor Trust Rule Changes The ability to use Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs), and other Grantor Trusts would change considerably under the new provisions (raises $7billion). Effective date: The changes below will apply to: - Trusts created on or after the “enactment date” and - For the portion of any trust before the “enactment date,” which is attributable to a contribution made on or after the “enactment date.” - The “enactment date” is generally considered the date signed into law by the President. Grantor Trusts that are created or receive contributions after the enactment date will be included in the estate of the grantor at the grantor’s passing. There will be an available reduction for the amount of taxable gift(s) made to the trust during the grantor’s life which effectively results in the appreciation being included.

Any distributions other than to the grantor or the grantor’s spouse from such Grantor Trusts will be treated as a taxable gift by the grantor, with the same reduction for the taxable gift previously made to such a trust as referenced above. Sales or transactions that occur after the enactment date between a Grantor and a Grantor Trust will be treated as a taxable event, and gains will be required to be recognized as such. Trusts created and funded before the enactment date would be exempt from the above provision. Other Miscellaneous Proposals A 5% surtax would be applied to individual taxpayers with a modified adjusted gross income o f more than $5,000,000. This would apply to all income for tax years beginning after December 31, 2021 (raises $127billion). Amends section 199A by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return (raises $78billion). Limitation on Excess Business Losses for Non- corporate Taxpayers (raises $167billion) Extends the revenue raiser in the American Rescue Plan to permanently disallow business losses beyond the taxpayer’s business income. The provision currently applies until 2027. The change makes the provision permanent. Modifications to Wash Sale and Disguised Sales rules (raises $16billion) including cryptocurrency transactions to treat cryptocurrency the same as other financial instruments and prevent taxpayer abuse of the rules. So what does this mean for you? During waiting periods and times of uncertainty, staying focused and keeping things in perspective is important. The proposed tax changes still need to be deliberated and negotiated. They must get the majority vote in each house of Congress to pass legislation and may not even become law.

We understand there is a sense of urgency surrounding making necessary changes to maximize your wealth planning objectives. Rest assured that we are prepared for any legislation changes that may be coming in the future.

The team at Spectrum will continue to provide innovative and practical solutions to any complex issues that may arise and create ways to implement effective plans to ensure your financial goals are met.

Works Cited 1 https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announces-additional-days-markup-build-back-better-act

Spectrum in the News

At Spectrum, our expert advisors are recognized as thought leaders in the wealth management industry and are frequently invited to contribute their thoughts, opinions and knowledge to nationally recognized financial news sources. Featured Article: The Wall Street Journal | June 28, 2021 | Leslie Thompson Persistent Advance in Stocks and Commodities Shows Investor Confidence Broad gauges of market performance are surging together in a way few on Wall Street have ever seen, masking volatility under the surface Leslie shares her thoughts on recent market activity and the large technology companies she is favoring. https://www.wsj.com/articles/persistent-advance- in-stocks-and-commodities-shows-investor- confidence-11624819947

Bloomberg | June 17, 2021 | Bob Phillips Bank EFTs Rake In $1.7 Billion After Fed Revives Value Rotation https://www.bloomberg.com/news/ articles/2021-06-17/spdr-s-p-regional-banking- daily-inflows-932-1-million?sref=81ZfsQPj GOBankingRates | August 19, 2021 | Leslie Thompson Inflation Winners and Losers: Who Benefits When Inflation Rises? https://www.gobankingrates.com/money/ economy/inflation-winners-losers-who-benefits- when-inflation-rises/

Want to see more of our latest news articles and interviews? Visit our Spectrum in the News page.

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the lens of supply and demand and what we at Spectrum call “indicators” of future activity. Technical analysis applies at individual security, sector and asset class levels. Tenets of Technical Analysis Market action discounts everything. All known information related to the security is reflected in the price, including fundamental factors. As soon as new information comes to light, it is immediately reflected in the stock’s price Prices move in observable trends with a tendency to stay in trend. The repetitive nature of price movements is attributed to market psychology. The trend is considered to be intact until the trend line is broken, and the adage “the trend is your friend” means you should trade in the same direction as the trend. Technical analysis analyzes the mathematical relationship between >Page 1 Page 2-3 Page 4-5 Page 6-7 Page 8-9 Page 10-11 Page 12-13 Page 14-15 Page 16-17 Page 18-19 Page 20-21 Page 22-23 Page 24-25 Page 26

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