In his 50-odd years as an appraiser of gems and fine jewelry, Warren Morss has laid eyes on some dazzling pieces.
There was the eye-popping, 17-carat diamond, and the pair of diamond earrings weighing 4 carats apiece, roughly the same as Hailey Bieber’s engagement ring. There was the emerald necklace boasting not one big pendant, but large-cut stones all the way around the collar and more emeralds dripping down the front. (“Really too much in my opinion,” he said decorously.)
These days, though, nothing stands out to Morss quite as much as the sheer volume of work he’s getting.
And that’s largely thanks to the election of President Joe Biden.
Biden campaigned on slashing the total amount of wealth that rich families can pass on tax-free to their heirs. As part of the 2017 Tax Cuts and Jobs Act — an unprecedented giveaway to the rich — Republicans and President Donald Trump raised the exemption to an all-time high of $11.58 million for individuals or $23.16 million for couples. Undoing Trump’s tax cuts would bring the individual exemption down to $5.49 million; if Biden succeeds in his desire to restore taxation to 2009 levels, wealthy families would be subject to estate taxes after the first $3.5 million.
The result is a mad dash among wealthy families to pass on their millions before they can no longer do so tax-free. Tax attorneys and wealth advisers to the 1% say they’re busier than they’ve ever been, while appointments for appraisers like Morss are filling up months in advance.
“What I’m seeing now is a panic,” said Joseph Marion, a Rhode Island tax attorney and expert in wealth transfer, “relative to people using up their lifetime exemption credits before those credits likely erode under the new Democratic regime.”
It’s not just estate tax levels that are under fire. As a means to pay for Biden’s ambitious social and infrastructure agenda, Senate Democrats favor jacking up the capital gains taxes that wealthy people owe on some of the stuff they inherit. (Right now, they only pay taxes when they sell the assets, and only on the increase in value since the last owner died.)
“Since November, especially, we’ve been panickingly busy.”
Biden’s Treasury Department could also revive several efforts, which the Trump administration mothballed, to prevent the ultrawealthy from playing fast and loose with the rules for assigning values to their assets. Eventually, the Biden administration wants to raise all sorts of taxes on the affluent — income, long-term capital gains — to finance paid family and medical leave.
“All the attorneys in my field are sending the message: This is going to be the busiest time ever,” said one wealth planner, who spoke on condition of anonymity because of his clients’ aversion to publicity. “Get in line now.”
The global COVID-19 pandemic has only driven demand for estate planning higher. Suddenly, lots of jet-setting couples found themselves sharing the same shore house 24/7 and driving each other crazy. “Divorces happened a little sooner than people thought they would,” said one attorney. “Or they didn’t happen after all.” There were elderly clients who died in the middle of estate planning, which can cause their plans to come undone. And the particulars of the COVID-19 recession actually helped many clients’ wealth grow faster.
Mostly, though, wealth advisers to the 1% have been slammed with clients racing to beat the Biden administration.
“Since November, especially, we’ve been panickingly busy,” said Michael Salvadore, who specializes in assigning value to privately owned businesses. “Sometimes people don’t realize how much money they’ve accumulated until they’re about to lose it.”
You may have heard the same pandemic that cost millions of ordinary people their lives, health, savings, stability, or jobs caused the fortunes of the country’s wealthiest families and its largest corporations to grow like gangbusters.
The year 2020 was likewise a pretty good year to make an estate plan. The technical reasons for this are baroque and tedious, as with most things tax-related. The main thing to know is that the economic rescue efforts that were necessary to protect the economy from total collapse — stimulus of atlas proportions, interest rates near zero — made for pretty excellent growing conditions of generational wealth.
Children with gigantic intrafamily loans — a way to avoid gift taxes — could refinance at favorable rates with the Bank of Mom and Dad. There was an explosion, several estate planners said, in high net worth individuals laundering their brokerage accounts through a kind of trust that captures all the appreciation minus interest and then passes it on to their heirs, gift-tax-free — again, a terrific gambit in a year when interest rates were low and the stock market walked off the coronavirus like nothing had happened.
Another boom occurred in trusts that allow ultrawealthy individuals to “freeze” the worth of a very valuable asset at a lower valuation by transferring the asset to the trust when it has a low value on paper — say, due to a once-in-a-generation pandemic. When the asset rebounds, the trust keeps all the growth, minus interest, for the heirs. For estate tax purposes, the price tag stays frozen at bargain-basement levels.
Jennifer Davis, a tax attorney with many high-net worth clients, marveled that the pandemic economy had “supercharged” all her favorite estate-planning vehicles.
“The year was intense,” she said. “We just keep thinking interest rates can’t go any lower, and they continue to decline.”
Trusts like these can be a shelter for just about anything of significant worth: a business stake, rental real estate, an LLC that holds the vacation home, a shell company that manages the family’s investments.
“The particulars of the COVID-19 recession actually helped many clients’ wealth grow faster.”
The patriarch of the Schreiber family, who founded J&J Snack Foods — you have doubtless bought one of their products, like a Slush Puppie or a SuperPretzel soft pretzel, at a theme park or a college basketball game — has a trust of this type for his children containing 200,000-plus shares of the company’s stock. Last summer, CEO Gerald Schreiber and the trust made a flurry of transactions. Only parts of the transactions are public — executives who trade their company stock must report it to the Securities and Exchange Commission — but the family likely took advantage of the economic downturn to change the terms of their trust and book a big tax benefit. The J&J Snack Foods workforce, meanwhile, suffered furloughs and salary reductions, and 221 of its workers lost their jobs. Spokespeople for J&J Snack Foods did not respond to a request for comment.
The trust belonging to the snack magnates is the rare one that has flared into public view. Of the glut of trusts that the 1% are forming to outrun the Biden administration — spousal trusts, charitable trusts, dynasty trusts — most will be given cryptic names that obscure their purpose.
“My clients, particularly the ones with notoriety, they’ll call it something like the ‘Mulberry Trust’ even though they’re the Smith family,” Davis said.
This secrecy makes it hard to pin down the scale of the current frenzy. But one outward sign of how many people are scrambling to plan their estates is how challenging it has become to book the appraisers who determine the estates’ size.
Salvadore, the business appraisal specialist, has seen an increase in demand ever since June, which happens to be when Biden definitively pulled ahead of Trump in the polls.
A recent assignment sent him hopscotching between oil rigs in a helicopter, somewhere out West. He’s also worked for several newly minted millionaires from the cannabis boom — tromping around their grow houses to tally up the value of their lab equipment, grow racks, and temperature and humidification systems. The amount of high-tech equipment many of them own is astounding, he said, in sharp contrast to their junior-varsity approach to estate planning.
“Because they get rich quick, they haven’t really thought about their estate,” Salvadore said. His appraisals help prepare them for the high-octane wealth protection schemes, like spinning off the land into special trusts and the heavy machinery into separate leasing companies.
Dollars-and-cents appraisers are not the only ones doing a brisk business. Multiple appraisers who specialize in hard assets — real estate, art, and gems and jewelry — tell me this is the busiest they’ve been in their entire careers.
When I called Sandra Tropper, a Washington, D.C.-area appraiser of fine art, she had just taken on an estate planning assignment involving a collection of 19th-century French Impressionist prints and drawings.
“Usually, I don’t get calls until somebody dies, and not for a while,” she said. “It’s not the first thing one does after getting back from the funeral parlor.” These days, without anyone having died, she’s getting a lot of inquiries from small-time collectors who want to know whether a couple of paintings could push them over the lifetime gift tax exemption.
“Sometimes people don’t realize how much money they’ve accumulated until they’re about to lose it.”
Morss, the jewelry appraiser, has been toting his portable gem lab up and down the New England coast, from colonial-style homes where the family lays out dozens of pieces of jewelry on their dining room table to the less-glamorous bowels of safety deposit box rooms. A single, high-value item can take him days to research and his final report can run as long as 12 pages. Lately, his schedule is further complicated by clients’ living in Florida for six months plus a day, in order to establish residency on its low-tax shores. So book him early.
And if you need to engage an aircraft appraiser, best of luck.
“I can tell you that the jet guys are very, very busy,” Salvadore said. (Kevin O’Leary, a jet guy, confirmed he is very busy, but not exactly because of the estate planning boom. The pandemic has created a surfeit of new customers for private air travel.)
Mostly, though, the fortunes are being passed on as financial assets, with the help of lawyers who are not having as much fun as Salvadore on his helicopter rides.
“When you’re dealing with high net worth individuals there aren’t really ‘fun’ stories,” said Marion, the tax attorney. Instead, he stays up at night wondering if he missed a trick. “It’s pretty nerve-wracking.”
None of this is guarantees Biden will actually succeed in raising taxes on the richest of the rich. It’s not clear whether Senate Democrats, with their minuscule 50-50 majority, have the appetite to do so.
Lots of tax attorneys compared the current frenzy to 2012, when the affluent feared that President Barack Obama would slash the estate tax exemption if he won reelection. “The sky is always falling” in this profession, one estate planner said. Instead, since 2012, the exemption has only gone up.
But if it does come down, there are low-tech ways to avoid estate tax bills, too. When a wealthy parent dies, Roger Durkin, a New England real estate appraiser, often works as part of a team of appraisers to value the entire home and its contents.
“It’s not uncommon to have us go to the house to do the inventory and valuation and find an empty hook on the wall,” Durkin said. “And where is that painting? Kid goes, ‘Oh, that was sold a long time ago.’”