2021 Tax Changes: What to anticipate and how to plan for it BILL NORTHEY: Hello, and welcome to the second webinar in our three-part webinar series, "The Informed Investor," presented by U.S. Bank Wealth Management. I'm Bill Northey, Senior Investment Director with US. Bank Wealth Management. And I'll be facilitating today's discussion. The election of Democrat Joe Biden as president and the Democrats maintaining control of the House of Representatives as well as gaining control of the Senate presents an opportunity for some major tax policy changes in the coming year. For the next 45 minutes, specialists from U.S. Bank will discuss how these potential changes could provide insights and tactical changes that you should consider as an informed investor. Before we get started, we wanted to give you some housekeeping items to familiarize with our platform that we're using today. You have the ability to customize your screen. It looks like a set of windows on your screen. You can drag the corner or the edge of each of those screens. And that will allow for you to resize them or reposition them as you would deem appropriate. You can also hide any of the modules by clicking the X in the upper right hand corner of any of the modules. If you would like to reinstate any of the modules, you can use the Restore button to bring back any of the previously hidden modules. That's located in the bottom menu control buttons. And at the bottom of the screen, you'll also see a tab labeled Questions. If you click on that tab, you'll be able to submit any questions that you have throughout the course of our conversation today. And if your questions are not addressed during our discussion, we'll be happy to get back to you afterward. Today, we are joined by Lisa Erikson, Due Diligence Strategy Director, U.S. Bank Wealth Management, and John Campbell, Senior Vice President, and Senior Wealth Strategist with U.S. Bank Private Wealth Management. Welcome, Lisa and John. Thanks for being part of our panel today. While the actual details of any changes to the tax policy are not yet clear, and may not be clear for weeks or months, being prepared for the tax landscape is incredibly important. And while President Biden's tax proposals aren't finalized yet, I'm going to spend some time today talking through the most likely scenarios and how that might impact your financial strategy. As you can see on the screen today, our agenda will really fall into three categories-- tax planning, estate planning, and investments. We anticipate many proposals coming from the Biden Administration that will target policies established in the 2017 Tax Cut and Jobs Act that was put into place under President Trump. This was a major piece of legislation that established our current tax regime. So John, I'd like to bring you in first. And for context, why don't you start by talking about reviewing some of the major provisions of the 2007 Tax Cut and Jobs Act [INAUDIBLE]. It was wide ranging. And we'd like to spend some of the time thinking about, as we go on through the course of our conversation, what might be targeted and, more importantly, how we can plan for? JOHN CAMPBELL: Sure. Bill, thank you. And good day, everyone. When you think about the Tax Cuts and Jobs Act of 2017, maybe a little bit of context might be helpful. When it was passed, it was the most wide sweeping piece of legislation over 30 years, since the Tax Reform Act of 1986. It consists of roughly about 1,100 pages long. And it was passed along bipartisan party lines. And as Bill noted, it was passed and signed into law, rather, by then President Trump. And it's often referred to even as the Trump tax cut. So in light of our current political landscape, if you will, it's not surprising that there are certain elements of the Tax Cuts and Jobs that might be targeted. In terms of its scope and its scaled, it touched practically every area, I think, that impacts all of us, from income taxation, impact in terms of estate planning, impact and exemption amount, and impact also for business owners. And just at a very, very high level there was a revision to the tax code that allowed for bracket adjustments. There were seven brackets prior to 2017, with the highest marginal rate at 39.6%. And what the Tax Cut and Jobs Act effectively did was to lower that marginal bracket to 37%. But it also expanded, as it were, the remaining brackets below it to allow more taxpayers to fall into a lower bracket, thereby saving money. And so that was a major overhaul to our tax system there. There's a doubling of our standard deduction. There's elimination of personal exemption. There was a reduction, as it were, in terms of corporate capital gains rate from 28% down to 21% and a host of a few other things that were there that we'll touch on in due course, including the doubling of our exemption amount. The federal exemption prior to the Tax Cuts and Jobs Act was $5.4 million. And it effectively doubled it to $11 million. And currently, it stands at $11.7 million this year, indexed for inflation. So that's a high overview. And it's important to note that even if President Biden and the, I would say, the Democrat controlled House and Senate were to do nothing, there's a sunset provision under the 2017 Tax Cuts and Jobs Act. So by December 31 of 2025, it reverts back to the way things were, in most cases, prior to 2017. BILL NORTHEY: Well, thanks, John, for that context. And that was a really nice summary of the things that happened throughout the 2017 legislation. So let's start to shift our focus, then, to the things that may change or may be targeted as a part of the provisions under the new administration supported by a Democratic House and a Democratic Senate and how we might be thinking about those from a financial planning and investment standpoint. So John, maybe if you could walk us through some of the income tax provisions, the changes that may be on the horizon-- I would be interested in your input and thought there. JOHN CAMPBELL: Absolutely, Bill. And as we think about some of these income tax provisions, I think the one wild card is not whether or not the Tax Cuts and Jobs Act will sunset come December 31 of 2025, but it's whether, under the current administration, there may be an acceleration of that sunset. It could happen probably not this year, but it could happen, for instance, in 2023 or 2024, which suggests that what we're going to talk about-- there is a window of opportunity prior to the sunset to take advantage of some of the provisions that might be there presently that could change. So as noted earlier, the upper end of the tax bracket under the Tax Cuts and Jobs Act was, and presently is, 37%. Prior to that it was 39.6%. And what's likely to happen will be a further contraction. Earlier I noted that there was an expansion of the various brackets below the 37% bracket to be able to house a lot more individuals so that they would have a lower, if you will, marginal, or even an effective, tax rate. What will likely happen is, as we go up to 39.6%, there may be a narrowing or a compression of those various areas so that folks who find themselves in a lower marginal bracket today could very well find themselves in a much higher bracket down the road. So for instance, if you're an individual tax filer on the highest bracket at 37% presently, you have to earn about $523,600. But that could easily be 39.6% at that level. And if you're filing jointly, as an example, that number is $628,300. Now, what is also being proposed is not only potentially increasing it to 39.6% but also considering having a different level of taxation for those who are earning $400,000 or more. So there's a huge delta, as it were, between current marginal bracket, the highest bracket before-- the highest earning, as it were, before you reach the highest bracket. And that could be compressed, and it could actually be lower for many individuals, thereby bringing them in under a higher tax regime, as it were. There was also an important consideration that was part of the Tax Cuts and Jobs Act. And it was elimination of the Pease limitation. Prior to 2017, the Pease limitation effectively unlimited the amount of itemized deductions you can take advantage of. Well, that was removed under the 2017 Tax Cuts and Jobs Act that'll effectively allow you to claim much higher itemized deduction. So that is likely not going to sunset. But there's a high probability that that could be accelerated as one of the changes that would take place. So effectively, what that means is that, not only is there going to be a limitation on the amount of tax deductions you can take-- itemized deductions you can take-- but what it also may mean is a limitation in terms of what is being proposed of limiting the itemized deductions to the 28% bracket. So as an example, if you happen to be in the 39.6% bracket but you have the limitation of 28% that limits your itemized deduction, there's roughly about 11.1% of itemized deductions that gets left on the table and you won't be able to take advantage of. So that's one of the likely changes as well, Bill. There's also a proposed change to the state and local taxes or property taxes, state sales taxes, as well as income taxes. Actually, this might be an interesting development because, currently, under the Tax Cuts and the Jobs Act, the SALT limitations limits to $10,000 the amount of state and local tax deductions that you can take advantage of. What is being considered by the Biden Administration is to eliminate the $10,000 limitation and get us back to where we were before. That would have the practical effect of greater federal tax savings because, as we have the $10,000 cap on the SALT limitations, it meant individuals and households have to pay a much higher federal taxes. By eliminating the $10,000, what that would allow us to do is to have a higher deduction at the federal level, which means a lowering, if you will, of the available taxes that might be paid otherwise. And that might also be tremendously helpful for states that have high property taxes, high sales taxes, high income taxes for instance Illinois as an example, where a lot of folks were leaving those states because they might have had a $35,000 tax property/tax liability but could only claim 10,000 of that. Well, that could change again. And that would help those states with those types of higher tax regimes. And I would say also adjustments to the credit. The credits are a dollar-for-dollar adjustment against the taxes owed. So there is consideration to expand eligibility for a host of different areas from a tax credit standpoint, including child independent care, home energy efficiency, electric vehicles to name just a couple that's there that's also being considered. BILL NORTHEY: Well, thanks, John. And to the audience, you can understand why we wanted to have John join us today, a man who brings a tremendous amount of energy in and around the world of income taxation and some understandings there. We recognize this is a lot of information that we're talking through with respect to taxes. But you'll note that there's going to be a replay made available of this conversation for access later. And you can also go down to the Resources tab in the bottom of your screen. And you can see the link that says, How Income Tax Policy Changes Could Affect You. That's a document that we've published and made available to our clients. We know that we're all subject to income taxes. And the reason that we're here is we're all investors as well. And so with that, I'd like to bring in my colleague, Lisa Erikson. And as we come to a point when some of these may come to fruition, Lisa, what do you anticipate that the market reaction might be? Stocks, bonds real assets-- this is your area of expertise. LISA ERIKSON: Thanks so much, Bill. And market's really, ultimately, react to growth potential, whether it's at an economic level or at a corporate level. So if we look at some of the key provisions that might change as John just outlined, and we think about, for example, the impact on individuals arise and some of the changes in the break points on those marginal income tax rates could ultimately have a dampening effect on the market. And the reason why is simply because, as consumers have less after tax income that they can utilize to spend, there is obviously less to power the economy. So again, potentially a temporary negative effect. I know we're going to be talking a little bit later as well about the impact on business taxes. But there is also on the table a proposal to raise corporate tax rates from the current statutory level of around 21% to possibly 28%. And again, that would ultimately impact the growth potential and the earnings potential of these corporations. So again, the potential impact on the markets could be a temporarily negative effect. Now, that being said, there are also other plans that we've all been hearing about in terms of potential for additional stimulus, whether it's in terms of coronavirus relief or infrastructure spending. And so just as an important note, that could be an offset to some of these income tax or corporate tax changes that we're talking about. BILL NORTHEY: Great. Those are good insights, Lisa. And I'd like to bring John back in here. So John, with some of these anticipated income tax provisions that you laid out a few moments ago, we know from Lisa what some of the potential market impact might be. But what are some of the financial strategies that individual investors should consider with the potential for some of these tax changes to take place? JOHN CAMPBELL: Sure. Bill, thank you. Especially given the changes that are under foot and given the uncertainties that are there that abounds that we can always put our fingers on an terms of which way the wind will blow, what we do know is that we have an opportunity to work with what we have available in front of us. So what we're seeing here and with clients is an opportunity to be even more intentional, even more proactive and thoughtful around planning around things that could help lower the bracket, if you will, that an individual may be in, things that might change the characterization of sources of income that would have that type of impact, even the integration of philanthropy and charity as an example. So I'll give you an example of what we're referring to here. So for instance, if you happen to be currently a high income earner in the highest bracket and you expect to be in a lower bracket into retirement, maybe one consideration may be to consider taking advantage of the opportunity to make contribution on a tax deductible basis, maximize get it into your 401(k) or into your IRA, your SEPs, and the various qualified plans that are out there. The thinking here is that by taking advantage of making a contribution today while your bracket is higher, you'll take advantage of a higher deduction. But later on the distribution side of things, as the income streams are distributed out, that income stream will be taxed at a lower rate. But on the flip side, what if you happen to be in a lower bracket now and you anticipate, because of accumulations of earnings and accumulations of investments and pensions and retirement assets and everything that goes towards informing your future cash distribution, maybe a consideration would be to consider a Roth IRA or Roth 401(k). Unlike a traditional IRA that when you put in after-tax dollars you're able to pull it out but taxable fully as ordinary income, with a Roth IRA, you're putting in after tax dollars instead, letting it grow tax free and tax deferred, and have the ability to pull it out tax free. So the thinking here is that if you're going to be in a lower bracket, maybe this is an optimum time to take a little bit of the tax hit today in exchange for a future better tax outcome later on when you start taking distributions out. So this brings us to the third point here. It's a increased focus, I think, that could be beneficial around income distribution planning. Typically, as we're accumulating assets during our life towards retirement or towards other goals and objectives, there's a primary focus on accumulation. Here, what is often overlooked, what is often not attended to is planning and strategies around income distribution planning. How do we minimize the income tax impact down the road? How do we go about changing some of the characteristics so that what we get is, instead of ordinary income, maybe we can get tax free income or income taxable as qualified dividends or income that's taxable as capital gains that's long term that has more favorable tax impact? So when you look at all of these together, I think that it calls for greater thoughtfulness. So if you happen to be a business owner as an example or a sole proprietor and you've got a SEP or you have a simple plan or you've got some other kind of traditional IRA, maybe now's the time to assess what you have and determine whether or not, given your goals, your objectives, given where you are tax wise in terms of your effective tax bracket, and given where you think you're going to be down the road, maybe there's an opportunity to do some creative planning, creative strategies to build for yourself a more tax [INAUDIBLE] sources of retirement income further on down the road. So these, initially, I would say, Bill, are some of the things that are opportunities for us to take a look at. I would also say that along those same lines, if you're making a charitable gift, we have seen scenarios where individuals would give cash to charity or they would take a distribution from their retirement accounts to give to charity. And there's a much more effective way to doing that. Under the Tax Cuts and Jobs Act and then also, importantly, under some of the changes that were done under the SECURE Act-- Setting Up Every Community for Retirement Enhancement Act-- that was just passed a little bit over a year ago, there are options and flexibility that is there. And there's also certain consideration that we have to be mindful of. But maybe, if you're over the age of 78 and 1/2, instead of making an outright contribution of cash, taking out income and having it be part of the 1040, that, instead, you make a direct trustee to trustee transfer of up to $100,000 an individual to a qualified charity that then does not get counted for tax purposes. You don't get a charitable deduction, but it has the effect of allowing you to preserve more of your assets for you while fulfilling a lot of the philanthropic interests that you may have. So those are some initial thoughts, Bill. BILL NORTHEY: Yeah. John, good information. I realize as I'm listening to you, there are a lot of complexities here. And there are a lot of what ifs about individual scenarios. And I'd like to remind the audience that each individual's situation is unique. And while we're offering strategies to consider as a potential in this changing tax environment, it's really important for you to work in the context of a well developed and comprehensive financial plan with a professional to understand how these may impact you directly. Our teams certainly collaborate with other outside professionals as well that include CPAs and tax preparers. So as you have these situations apply to your unique capabilities, make sure you're doing it in the context of your personal situation. So now that we've discussed income tax changes or potential changes to income taxes, let's turn the page and think about how the other tax changes that may be coming down the road might impact both individuals as well as business owners. So John, I'm going to bring you back in, not to let you dominate the screen. We're going to get to Lisa here a little bit later. But let's talk about some of the other anticipated tax changes that we might be watching out for. JOHN CAMPBELL: Sure, Bill. I think here I would just highlight three things in particular. The first thing has to do with the potential elimination of deductions for pass-through entities. Part of the 2017 Tax Cuts and Jobs Act was a new provision-- 199(a)-- that allowed for owners of pass-through flow-through entities up to a certain income level that was generate in terms of qualified business income to allow a deduction of 20% off of that amount. Now, that is scheduled to sunset. But again, this is one of those things that could be accelerated. This applied to S corporations, LLC, sole proprietorship, partnerships that may be there. What it did not apply to, however, are professional services companies and others that are tied into that particular area where their own personal name, their personal brand allowed them-- like professional athletes and entertainers. But again, this is one of the things that will be probably considered and possibly accelerated a little bit more. One of the reasons for this particular reduction, the 20% off of the qualified business income, had to do with the lowering of the corporate tax from 28% to 21%. And this was an effort to give folks with businesses that were flow-through pass-through entities not taxed as a corporate level but taxed at the individual level an opportunity to approximate a little bit closer to what the corporate tax regime would have been. It's not quite there at 21%. But again, it was an effort to even that playing field a little bit. So that would be in play a little bit. Certainly, what's under discussion is increasing, if you will, the income level where social security would apply. Currently, social security and FICA are taxed up to $142,800. What is being proposed is that, if you earn $400,000 or more, to apply that same social security tax to earnings above $400,000. What that means is between 142 and 400, there's a gap there. Presumably, there's nothing that will be taxed on the Social Security side. But if you're a higher wage earner at $400,000 and greater than that, then you may be subject to additional social security taxes. You'll recall it's 6.2% that's being paid by the employer, 6.2% that's paid by the employee. Together that's 12.8. So it's a very significant tax on money that currently is not being taxed but which could be exposed. And then the last item I would look at, Bill, has to do with earners who earn a million dollars or more. One of the things that is being considered is that if your wage or your earnings are a million dollars or more, to do away with, to eliminate the ability to get long term capital gains treatment. Currently, long term capital gains treatment is at 20% above a certain earnings threshold. And not only at 20%, but there may be a net investment tax also of an additional 3.8% for a total of 23.8%. What is being considered is that if you earn a million dollars or more, that you would be taxed at the ordinary rate of 39.6% potentially, with the additional 3.8% surtax for an additional-- not surtax, but net investment income tax-- for a total amount of 43.4%. So that's a huge, huge game changer for a lot of our clients. And I think relatedly, is treating all carried interest, which is typically something that affects some general partners who are part of a hedge fund or part of a private equity firm-- that if they were to hold the carried interest for three years or longer, currently they can receive long term capital gains treatment on that. What is being proposed is to eliminate that totally so that if you have carried interest, it would be treated as ordinary income. Again, here we're going from 20% up to potentially 39.6%. So these are three big areas of additional potential anticipated taxes, Bill, that I think we might expect coming down the pike. BILL NORTHEY: Thanks, John. And so, Lisa, we add another layer of potential tax changes on top of what you already addressed here. And thinking about this through the capital markets lens, what are some of the things that we might expect in terms of potential reactions in the capital markets if this set of tax provisions were to accompany those that we talked about on the income tax realm? LISA ERIKSON: One thing that, really, the market has given a lot of attention to-- and certainly we've been thinking as well-- is that last tax change that John mentioned, which is really a change in how capital gains are treated on a long term basis. And so again, for an individual where they're looking at a big step up, potentially, in the capital gains on their positive investments, there could be a move to try to capture some of those gains at a more favorable tax rate before, potentially, any new tax regime sets in. And of course, that selling pressure ultimately, because of the extra supply on the market, could, again, have a dampening effect on what's going on in the markets. Now, that being said, keep in mind that we're talking about one aspect of the investing population. So really, the ultimate effect on how markets will play out is really going to be the combination of a bunch of different actions, whether it's some of the affected individual investors, what other investors, institutional players may be doing in the market. BILL NORTHEY: Yeah, Lisa. That's really good insight because the market is full of taxable and nontaxable accounts, taxable and nontaxable entities. So this applies to a certain marginal element to what will be part of the capital market complex. So John, let's bring you back in. With some of these anticipated tax changes that you put out in the second round, what are some of the financial strategies that our audience could potentially think about in applying to their own situation, of course through the guidance of qualified professionals? But maybe give us some sense of some of the strategies that we could put in place if these were to come to pass. JOHN CAMPBELL: Sure, Bill. And I think the operative word is "strategy," which suggests planning. It suggests taking inventory of the things that are important to you, the resources that are there, the sources of inflow, the commitments that you're making. And in light of the totality, again, of your personal situation, to think about, well, what are some of the things that you can do that can have an impact, a real, meaningful impact? So there are a couple of things we've talked about already. I would add to some of the things we've spoken about in terms of, if you are thinking of selling a highly appreciated asset as an example, whether it's real estate, potentially a business interest or the like-- maybe to consider accelerating the sale. And again, this is assuming you had an intention to sell it. We don't want the proverbial tax tail, if you will, to whack our planning consideration. But if the inclination is to sell it intrafamily sell, third party sell, or to a select group of investors-- whatever the case may be-- maybe there's an argument that could be made to accelerate that sale now while you have the ability to take advantage of capital gains treatment, and especially if, in the process of making that sale, that could result in a potential tax at the ordinary rate under any changes that might come a little bit further down the pipe. I also think there's an opportunity-- we have a lot of our clients are very charitably inclined. And this is a way to think about those philanthropic interests that you have and to use it both tactically and strategically, both to enhance and preserve what you get to leave for your family, but also to make the kind of impact that you want to be able to make socially. And I think that with respect to that, you can incorporate different gifting strategies. So for instance, here's one that we didn't talk about that could be very, very powerful. And that is if you want to pass on some assets to your intended charity but there's still a need to hold on to that asset or at least hold onto the income stream in some form as it relates to that asset, well, maybe there's an opportunity to consider a [? charitable ?] remainder trust and maybe structure it in such a way that it allows it to be managed the right way, generates an income to you over your life. And under the relevant provision of the tax code, that requires it to pay out an income stream at least no less than 20 years or over a person's life expectancy or during life expectancy. So here's the way to, maybe, in that income stream, to have a different characterization of the income from a tax standpoint that might be generated as well as the nonrecognition at the onset on the sale of that asset inside of the CRT. So it's drawing from the different tools and resources that are available. And it's like a chess board, understanding, given your intended goal and objection, how do we reposition the various pieces to accomplish the intended objective that you have? I think for business owners, there are a couple of other things that are there. One of the things that's available for a lot of business owners are net operating losses that might be there. And with the net operating losses, you can look back five years. But importantly, you can go forward in an unlimited numbers for those losses that were incurred from 2018 to the present. So this may be a scenario where if there's a desire to sell certain assets-- you've got a net operating losses through a flow-through entity that maybe you're not taking full advantage of, maybe there's a way to pair the two a little bit to mitigate your tax exposure. Maybe this is something that you might also consider using if you're approaching retirement, as an example, and you've got a IRA asset and you want to do a Roth conversion, but in the process of doing a Roth conversion, it might result in a taxable event, well, here's where you may be able to use some of those net operating losses to offset the tax exposure on the conversion to a Roth from a traditional IRA or from a 401(k) and the like. So I would say it's important to, again, think outside of the box, be proactive, look for these opportunities, working very closely to your advisors. And I would say, even to a different level because of the changes in the tax structure that is underfoot, because of the higher marginal bracket that individuals will find themselves in relative to corporations-- in the right situation, may be a case could be made, whereby, instead of being a pass-through or flow-through entity-- perhaps you're an LLC or you're an S corp-- would it makes sense to or C corp? Or would it make sense to recapitalize your business in such a way that you could split out different operations within the business and have a piece of that operation, perhaps, organize as a C corp and take advantage of the lower C corp tax bracket, even though it is double taxes, but it's only double taxed on income that's going to be retained. So these are the things that I would offer up as additional considerations. On the net operating losses, just to come back to that briefly, there used to be a $500,000 limitation on how much of that you can use. Currently, that limitation is unlimited. But that could change. And it could change with other policy changes that the Biden administration may be considering. BILL NORTHEY: We've talked about two waves of potential tax implications and changes. And there's a third that we need to think about as well. And that really falls in the realm of estate tax as a hot button issue. And so, John, being our resident tax expert here, would have you talk a little bit about, what are some of the potential changes that may come in the realm of the estate tax? JOHN CAMPBELL: Thank you, Bill. Let me couch it this way. There are changes that will be under foot that is not speculative because it's written into the 2017 Tax Cuts and Jobs Act. Earlier we referenced that this Act will sunset come December 31 in 2025, if Congress does nothing. In fact, Congress and our current president would have to proactively extend that for that reality not to occur. If that were to occur, this is where we get a lowering of the exemption amount, the federal exemption amount, from the $11.7 million where it is today to probably closer to 6, 6 and 1/4 of a million dollars, going back to the 2017 level but indexed for inflation up to the present area. And so that's taking it from $5.4 million, perhaps, to about 6, 6 and 1/4 million dollars. That means that many of our clients may have assets and estates that will exceed that particular threshold amount. Between a husband and wife, we're looking at roughly about, maybe, 12 and 1/2 million dollars that will likely occur after December 31 of 2025. And that could be accelerated as we noted. So it may be that what we felt were estates that were below the threshold today may be an estate that could very well fall within that threshold amount. Under the exemption amount that's currently available, we could pass on, at death, or during life for lifetime gifting, the same $11.7 million, or $6.25 million come 2017, under the sunset provision. But there's also something else that's being considered by the Biden Administration. And that is the openness not only to consider going back to the 2017, if you will, exemption amount, but possibly considering going all the way back to the 2009. In 2009, the exemption was only 3 and 1/2 million. So now we're talking about between a husband wife or joint couples here-- we're looking at $7 million, 3 and 1/2 apiece times 2. But what's big difference here is that instead of it being a unified exemption, in 2009, you weren't able to gift during life the 3 and 1/2 million. You were kept at only one million. That's where there's an opportunity, I think, to revisit estate plans, to revisit desires that there may be to pass on wealth, especially to the next generation, leveraging the available exemption before it either sunsets or before it is accelerated, before that window closes, and especially if it might involve going back to the 2009 figure that would result in a limitation on how much we can give during our lifetime. So that's one huge area. I think a closely related huge area that's been discussed for a long, long time. But finally, I think, between the Democratic controlled House and Senate as well as the Democratic presidency, there has been discussion of eliminating the step up in basis. So right now, if I've got a $5 million estate, as an example, and I've got a cost basis of all of my appreciable assets at $2 million, at death, there's a step up in basis and cost basis to $5 million so that heirs can sell that $5 million asset and recognize no income taxes or no capital gains taxes. What this provision would do is provide for a carryover in basis instead of a step up in basis. And what that means is that in the same fact pattern I just shared, you've got a $3 million of unrealized gain that, at death, it doesn't mean that that gain necessarily have to be realized by the sale of the asset. What it simply means is that, at death, instead of getting a step up in basis, you get a carryover in basis. And what seems to be messaging out there is to tax that unrealized gain as if it were realized. And what's unclear is whether or not that tax will be at the capital gains level or the ordinary income tax level. So these are huge considerations. If you owned a family farm, if you owned real estate, if you owned, if you will, concentrated stock positions, if you owned a business interest, between these two likely changes that will come down the pipe, it opens the door for further discussion with a team of competent advisors to help you navigate again through all of the things that are likely to occur to position you in a much stronger position vis-a-vis your goals and your objectives and concerns. BILL NORTHEY: Great. And thanks, John. And so on the screen, folks will see a couple of financial strategies that people may want to consider. And for the business owners who have joined us today, if you're considering an ownership transition that John referenced, U.S. Bank Wealth Management has a business owner advisory services group led by my colleague, Rod [INAUDIBLE], ready to assist any who have questions in that area. And if you do have some questions, fill out the Contact Me tab in the lower right module of your screen. So Lisa, let's bring you back in and turn to you to have us wrap up on our conversation today. We've talked about a lot of hypothetical situations around how policy is still being formulated and may impact a whole wide ranging set of potential tax implications. So if you could run through, perhaps, some of our capital market considerations and portfolio considerations with where we are currently, I think that would be incredibly helpful for our audience. LISA ERIKSON: Absolutely, Bill. And if we go back, really, to how we opened up this particular webinar, if we think about, again, how markets price out, they're really focused on growth potential. So as long as we see the economy continuing to recover and heal, the pace of vaccinations pick up, and the ability of businesses to continue to reopen for business, the markets will generally react positively to that. Now, some of the things that we're monitoring in the interim-- obviously, our policy. We spent a lot of time talking today about tax policy. But there is policy in many different areas that we continue to monitor as we assess the day-to-day and the quarter-by-quarter implications for our clients. In addition to that, we do have a base of, really, where we think things are headed over the next several months. And so again, depending on your particular investment situation and objectives, here's an outlook of things that we think you should consider in your portfolio right now. In terms of equities or the stock market, we really are favoring at this current time US equities over international. If we just look at the recovery pace and the opportunity for growth, it remains very good here in our home market, although we certainly do note the potential for some of the Asian economies as well. When we move to the fixed income or bond side, right now we do believe in emphasis, all other things being equal, is on including some higher quality credit within your portfolios. Again, while we've been through a very tough economic period, certainly companies have been able to hold up much better than I think any of us expected through this difficult recessionary period and difficult in many other ways as well. And so again, having some of that extra corporate credit within your fixed income portfolio certainly will give you an opportunity to pick up a little higher interest rates. And finally, in the real assets area, one of the things that we are suggesting our clients consider is really to focus on real estate. While certainly there's some secular changes going on in the industry, the overall real estate area has a nice combination of some growth sectors as well as some sectors that are leveraged to, again, any potential economic reopening. And so we think staying invested in that sector really provides a nice balance between some economic recovery stories as well as some secular growth stories. If we move on to the sector side of it, especially within the stock market longer term, we believe that the secular growth stories such as you see in information technology and the communication sectors and in select segments of consumer discretionary really remain a very attractive area to be in. They are able to continue to take advantage of changing trends and preferences and consumer spending as well as corporate spending and so continue to have those legs of growth underneath them. However, in the nearer term, we suggest a more balanced posture between some of those more secular growth sectors as well as, again, some more economically sensitive sectors like energy, like industrials, like financials, again, that should be able to benefit from some of that re-opening activity. BILL NORTHEY: Great, Lisa. And thank you for those insights. Certainly, this is something where, as we apply it to individual situations, every situation is unique, and every client is unique. So make sure you're reviewing it with your wealth management team and others as appropriate. So if you're an existing client of wealth management here at U.S. Bank, please do not hesitate to reach out to us and have us work through some of these considerations that both John and Lisa have brought to you today in the context of your own situation. But if you're not a client and you're interested in learning more about how to apply this to your own particular situation and you want to-- or you just want a second opinion on what you're currently doing, we invite you to connect with one of our wealth management team members for free, a virtual consultation, as it were, in the era of COVID. We look forward to seeing everyone in person very soon. But you can just go to the Resources tab that's at the bottom of your screen. And there's a link that says Find An Advisor Or Banker Near You. And we'll be happy to get back to you with [? your ?] information. So as I mentioned, today's webinar is the second part in a three-part informed investor webinar series hosted by U.S. Bank Wealth Management. And I want you to be on the lookout, so please put this on your calendar-- April 8-- we'll be talking about retirement planning, something that is near and dear to many of the people that are on our call here today. And lastly, we'll be sending a replay of this webinar out very soon. But in the interim, if you just can't wait for more information about taxes-- and I know we can all get very excited about that, maybe not as excited as John does-- but you can click on the Resources tab at the bottom of your screen. And you can find additional helpful tax resources. We'd also invite you to go to USbank.com/marketnews. You saw a video running as we came into our webinar today-- great set of insights available from our senior investment strategist, our publications that we would love to be able to share with you. So once again, I would really like to thank John Campbell, Lisa Erikson for joining me today and sharing their insights. I would like to thank you as our audience for attending this webinar. We really hope that it was valuable for you and it is something that you can apply to your own personal situation. And we are here to help you with you and your plan and your family considerations going forward. Happy to answer any questions you might have. If you'd like someone to contact you, again, fill out the information in the Contact tab. And we'll have a team member reach out to you. Be well. Have a great day. And we look forward to seeing you in April. Thank you.