All eyes are on the election and prospects for tax reform. Prepositioning is advised for wealth transfers using current gift tax exemptions, so that gifts can be made timely and before year-end should there be a major change in our government and shift to the left. Prepositioning and having vehicles in place to accept gifts are the current priorities in estate planning. Related is retention of financial security and cash flow through peripheral means that do not jeopardize the use and effectiveness of wealth transfers. Failing to recognize various legal issues can nullify the gift or cause the gifted property to be included in the donor’s taxable estate.
At the time of writing this note, Washington remains gridlocked on additional stimulus to confront the effects of the pandemic. Nevertheless, the markets remain positive but with a large divergence between the Dow (+.24%) and the NASDAQ (+30.08%), illustrating the anticipated strength of the tech sector and weakness in more traditional stocks. This tech sector strength is driven by the social disorder created by the Covid-19 pandemic, where it has become essential to work remotely. However, valuation multiples are elevated and close to all time highs in some markets. Countries across the world are spending massively, with the EU vulnerable because some countries are over leveraged and went into the pandemic less prepared and with less financial strength than the US. Real interest rates are negative in the US and around the world. There is a fear that weakening currencies may drive inflation, while making weak countries weaker. A fear is that higher taxes with a Democrat controlled government will raise taxes so much that it will cause a spiraling down of earnings and equity valuations. On the positive side, near term retail sales are up (including big ticket items like housing and autos) and so is employment. The increased monetary supply and low interest rates are buoying the negative effects of the pandemic.