"Every election is an opportunity for a national discussion of the issues that affect the entire country, and a chance to collectively address the future," notes Jeff Korzenik, Chief Investment Strategist for Fifth Third Bank. "For many voters, preserving a legacy for their children and grandchildren – usually by creating or preserving wealth – is of vital importance."
Korzenik was one of three panelists who examined the many ways Election 2016 will impact investors, savers, business owners and retirees. Led by financial reporter and author Nicole Lapin, Korzenik and his fellow roundtable participants – Joe Gagnon, an economist at the Peterson Institute, and Melissa Register, senior wealth planner at Fifth Third Private Bank – delved into such key issues as estate planning, retirement, the economy, taxes and overall investment strategies.
What's at Stake for the Next Generation
When it comes to this year's elections, the main issues at stake for those children are education and the means by which families pass along their estates. Throughout the campaign, it has become clear that there are high levels of public dissatisfaction on both of those issues. And so it's possible that a change in the balance of power could have a major impact on education policy and on the taxes families pay when they pass along their estates.
Education, especially the cost of college and the widespread burden of student debt, was a centerpiece of Democratic primary candidate Bernie Sanders' campaign. And Democratic nominee Hillary Clinton has incorporated some of those ideas into a plan to make state universities free for children from families whose incomes fall below certain thresholds. But that plan is likely to face Republican opposition in Congress, says Danielle English, government affairs officer at Fifth Third Bank in Washington, D.C. "Instead of making college free, it's more likely that Republicans would address the funding mechanism for education, and possibly the lowering of interest rates on student loans."
Although the cost of education hasn't been as much of a focal point for Republican candidate Donald Trump, he has proposed cutting the interest rates on student loans offered by federal agencies. And when it comes to primary and secondary education, he has spoken out for more school competition through more magnet schools, charter schools and private-school-voucher programs.
As the campaign season has progressed, wealth inequality has become less of a hot-button issue. Given the current environment in Washington, a change in the estate tax is unlikely to follow the election, regardless of who is elected, say experts at Fifth Third Bank.
"Although both presidential candidates have addressed the estate tax in their platforms, it seems unlikely that there will be significant change to the exemption or rate in the near future," says Melissa Register, a senior wealth planner for Fifth Third Bank in Cleveland. The current estate tax laws go back to late-2012 legislation that set the federal estate- and gift-tax levels at a then-threshold of $5.0 million per person. With inflation adjustments, the current exemption is $5.45 million per person (or $10.9 million per couple).
Changes on the Horizon
Beyond just the estate tax, there are other concerns for families with a certain degree of wealth. There are several ways that passing wealth to the next generation could become costlier. Intergenerational wealth transfer is always on the radar of elected officials, says Register.
"The estate tax generates less than 1.0% of federal tax revenue, but seemingly small changes to current tax laws or available planning techniques could generate significantly more revenue than the estate tax itself," she says, pointing to President Obama's 2015 State of the Union address, in which he took aim at the "loopholes" that many families use to protect their estates. The specific law he mentioned allows certain appreciated assets, such as stocks and real estate, to receive a "step up" in tax basis upon the owner's death, thereby reducing or eliminating capital gains tax upon future sale.
"This is the first time we've heard an elected official put that provision under the microscope in such a public way," Register says. If such a change were implemented, she predicts it could be "bigger than repealing the estate tax in the estate planning world."
As the election has progressed, wealth inequality has become less of an issue, and given the current environment in Washington, a change in the estate tax is unlikely to follow the election, regardless of who is elected, say experts at Fifth Third Bank.
Michael Donovan, a Fifth Third Bank wealth management advisor in the greater Chicago area, warns that the election itself can act as a catalyst for such reforms. "The election could create momentum to act on those things," he says.
More at Stake Than Just Inheritances
For family-owned businesses and the people they employ, the laws relating to passing along an estate are a serious matter, says Glen Johnson, managing director at Mirador Family Wealth Advisors, a unit of Fifth Third Bank. He works with ultrahigh-net-worth individuals and their families, the vast majority of whom built, and still run, their own businesses.
A common scenario, Johnson says, is that many of the grown children who stand to inherit family businesses have forged their own paths in life, and don't want to manage the family business. And so the best option for the family may be to sell the business. Whether it's the parents who built the company or the children who have grown up around it who are putting the company up for sale, the decision is an emotional one.
"They are the backbone of their communities, and they all have employees," Johnson says of the ultra-high-net-worth business owners. "When they are selling a business, the biggest concern is usually employees; will they have jobs?"
In these situations, the election creates uncertainty on many fronts. The market for the company is sensitive to a wide range of factors that are directly or indirectly affected by the election. Higher interest rates, a change in corporate taxes, or a downturn in the economy could all make it harder to choose a buyer with the same values as the company's founders.
"You're selling something that your family has put their heart and soul into for decades, you want to get it right," Johnson says. "For many, it is important for these families to craft sales that maintain physical plants in current locations and avoid layoffs."
But the biggest danger that the election poses, whether you're a business owner or an individual with an estate to pass down, is that it can lead to a paralysis when it comes to taking the necessary steps to address the future, says Register.
"I think that uncertainty sometimes prevents people from taking action even when it needs to be taken, whether that's updating an estate plan, or making gifts to family. We know what the laws are now and how to best navigate them now, so I urge anyone with succession-planning concerns to have these conversations with their advisors now."
For more on the potential impacts of Election 2016, Fifth Third Private Bank has compiled a helpful guide at http://investing.53.com/FifthThirdPrivateBankElectionOutlook2016. The five-part video and article series explores the major issues on the line this November, and how the election may affect retirement, the economy, investment strategies, taxes, and creating or preserving wealth for the next generation for years to come.
About Fifth Third
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $144 billion in assets and operates 1,191 full-service Banking Centers, including 94 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,541 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth and Asset Management. Fifth Third also has an 18.3% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2016, had $305 billion in assets under care, of which it managed $26 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com/. Fifth Third's common stock is traded on the Nasdaq® Global Select Market under the symbol "FITB." Fifth Third Bank was established in 1858. Member FDIC, Equal Housing Lender
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SOURCE Fifth Third Bank