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Preparing for Change: Year-End Planning


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Experts from The Northern Trust Institute offer strategies to prepare for the new year.

2021 has been another year of momentous change, motivating many of the families we work with to reflect on their lives and reevaluate their long-term wealth plan. We asked our experts at The Northern Trust Institute, “What is one thing you would advise our clients to do prior to the end of 2021 to best position themselves in the new year?”

We hope you find these insights helpful as you prepare for 2022.

Pam Lucina, Chief Fiduciary Officer and President of The Northern Trust Institute

Planning Considerations for Individuals and Families

“As the year comes to a close, inflation and its potential impact on monetary policy remains a top-of-mind concern for investors. While we continue to believe that some of the unique attributes of this recovery that are driving a period of elevated inflation will ultimately abate, it is worth noting that inflation degrades purchasing power or the real value of money, and goals are funded with real dollars. For that reason, we continue to recommend inflation hedges in client portfolios — equities and equity-based natural resource exposure in risk asset portfolios, and Treasury Inflation Protected Securities in risk control portfolios. Further, as we come to year-end, we encourage investors to revisit their financial goals, and to ensure that portfolios are properly aligned. With another year of strong global equity returns — largely driven by the exceptional performance of U.S. equities, it is likely that a proper annual rebalance may be required.”

“The low interest rate environment creates an opportunity for individuals and businesses alike to leverage assets to address year-end tax planning and other liquidity needs. Whether it's borrowing to exercise stock options, fund lifetime gift exemptions and dividend recaps or simply maximize the tax efficiency of real estate property, conditions are uniquely favorable. This is a good time to evaluate your balance sheet and identify opportunities to use leverage to accomplish goals and complete strategies.”

“With estate/gift tax exemption possibly being reduced to $5 million (adjusted for inflation) as of year-end, execute any pending plans to transfer assets into trusts to fully leverage the historically high exemption amount. Consider several planning strategies that will allow you to retain decision-making authority over these assets during your lifetime, such as:

  • Establishing a directed trust with you as investment advisor.
  • Recapitalizing shares of a business into voting and non-voting shares and funding a trust with the non-voting shares.
  • Appointing an individual co-trustee to serve with a corporate trustee and giving the individual trustee the deciding vote in case of deadlock on major decisions.”

“Set aside some time during the holidays with your family to draft a family cornerstone statement, which captures the family’s shared values and long-term vision of success, and includes actionable steps to bridge the current and desired future state. Research shows that the majority of generational wealth transfers ultimately fail, not due to poor estate planning or failed investments, but due to the breakdown of communication and trust. Creating a family cornerstone statement is often a family’s first step in engaging across generations, helping them align on what is most important and make better decisions together.”

“Imagine your future self five, 10 or even 20 years from now. How would your future self react to the planning decisions you choose to make (or do not make) this year? For example, what would your future self say to you if you set up a donor advised fund for your kids, or agreed as a family to schedule a family meeting every six months to discuss the family’s values and long-term goals? Clients who do this simple exercise are often motivated to consider and implement changes to their wealth plan that they have otherwise been putting off.”

“Consider taking inventory of the charitable organizations that are currently supported by your family members by asking:

  • Are the efforts of these organizations still aligned with your family’s values?
  • Are the services provided still relevant, necessary and up to the challenge in this ‘new normal’ that is still being defined by the pandemic?
  • What can you do to hold these organizations accountable for achieving impact?
  • Is the current giving scattered and unfocused?
  • Is it time to reevaluate current giving practices and consider different organizations that may need capacity-building support to continue helping the local community where family members are located?”

“Proposed changes to tax policy, SEC rules and interest rates will greatly impact executives if passed, making this an apt time to strategically plan. First, consider exercising non-qualified stock options that are near expiry to realize income and take advantage of lower income tax rates. Second, if there is a desire to transfer significant assets to future generations, consider gifting now before the historically high lifetime exemption reverts back or is prematurely lowered. Third, execute a Rule 10b5-1 plan before a mandatory cooling off period is instituted and single trades are banned from affirmative defense protection. Last, with rising interest rates on the horizon, leverage a concentrated stock holding as collateral to access cash at a low interest rate without selling stocks that incur tax consequences, all while maintaining the concentrated position or company stock holding requirement.”

“Living through a global pandemic has reinforced the wisdom in always being prepared. Being ready for anything starts with understanding where your necessary information lives. From financial to health and legal records, access to key information should be at your fingertips. You also need a clear picture of not just what you own, but also what you owe, along with an idea of how cash flows into and from your household. Last, set up an emergency action plan so that if something unexpected happens you already know what your first steps to reestablishing order will be.”

Planning Considerations for Business Owners

“Given the economic, social and political changes over the past year, now is a good time to review your company’s ownership. We suggest starting by answering these key questions:

  • Are your shareholders still aligned on the company’s long-term plan?
  • Are there any shareholders who may want to exit the business now due to financial considerations, time constraints or ideological differences?
  • Have or do you expect the prospects for the company to change?

We expect private company valuations to remain strong in 2022, however we know from experience that orchestrating a well-organized sale of a company’s stock takes time and planning so are happy sharing our views on these matters irrespective of whether the desire is to execute a sale in 2022 or in several years.”

“The pandemic has been a challenging time for many companies’ greatest asset — their employees. For year-end compensation planning, consider adopting one or more incentives that will help motivate non-family employees to continue to remain with the company (for example, long-term performance-based incentives, phantom stock or employment agreements for key executives). Doing so helps ensure continued growth and management continuity, both of which are key steps in developing a robust, long-term succession plan to keep the business running for future generations.”

“Given the potential tax changes on the horizon, including a graduated corporate income tax rate, limits to the maximum deduction for qualified business income, and the opportunity for certain S corps to reorganize as partnerships tax-free, now is an ideal time to revisit the entity structure of your business and your family’s business holdings. Model cash flow scenarios for different entity structures, taking into account the cost and timing of converting, use of cash flows, and other tax implications, and map out a timeline for implementing any proposed changes.”

Start Planning

Key Tax and Wealth Planning Considerations

Download our 2021 Year-End Tax Planning Checklist for considerations to discuss with your tax advisor.

Tax Planning

2021 Year-End Tax Planning Checklist

Identify issues to discuss when you meet with your tax advisor.


Proven Advice for Moments that Matter


This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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