After the midterms: Addressing your clients’ tax concerns

Your client calls after the election.

“I keep hearing about taxing the rich. What should we do?”

Before answering, ask another question.

“What are you most concerned about losing — the income you live on, access to your money or what you planned to leave your family?”

Their answer tells you where the conversation needs to go.

The midterm election season brought proposals to tax high incomes, accumulated wealth, trusts and expensive second homes into sharper focus. Some remain proposals. Others have already become law.

Election results may influence which ideas advance, but they don’t turn every campaign promise into a tax bill.

For insurance agents and financial advisors, the opportunity is to help clients understand the exposure, examine their choices and take appropriate action before a transaction or deadline limits what they can do.

That starts with making the issue personal enough to understand and specific enough to plan around.

New York: The second home with a different carrying cost

New York City’s surcharge on certain nonprimary residences demonstrates why advisors need to look beyond income taxes.

The adopted rules cover certain high-value homes, condominiums and cooperative apartments that do not qualify for a primary-residence exemption. Property types have different valuation thresholds and rates.

Consider Richard and Elaine, a hypothetical couple who keep a one-family home in the city while maintaining their primary residence elsewhere.

Assume the applicable Department of Finance valuation is $8 million, and the property is subject to the 0.8% surcharge. That adds $64,000 annually to the cost of ownership.

An advisor might say: “You bought this home because it supported the life you wanted. Let’s examine whether the additional expense changes how you want to use it or how we fund it.”

The next step is to verify the valuation, actual occupancy, exemption eligibility and procedural deadlines with appropriate professionals.

Then compare retaining, renting or selling the property.

The family may decide to keep it. But now they understand what keeping it requires — and which account would supply the additional money.

California: A one-time tax can create a lasting liquidity problem

California’s Proposition 40 put a one-time billionaire wealth tax before voters during the election season. Its official analysis described a tax of up to 5%, an earlier residency reference date, and exclusions generally covering real estate and retirement assets. A ballot proposal must be distinguished from an enacted obligation.

The planning lesson is worth examining regardless of the measure’s eventual disposition.

Suppose a hypothetical founder’s covered wealth consists largely of shares in a private company.

The company has substantial value. The founder’s checking account does not.

A wealth-based tax could create a payment obligation without a corresponding sale providing cash.

An advisor might ask, “If you had to raise a substantial amount of money without disrupting the company, which assets would you use first?”

That leads to a liquidity review: available cash, marketable investments, distribution capacity and borrowing alternatives.

It also leads to a conversation about valuation and ownership with legal and tax counsel.

Moving, gifting or restructuring after a proposal becomes prominent may not resolve exposure when its language references an earlier date. Read the dates before recommending the decision.

Washington: A planning window with a scheduled starting date

Washington state provides an example of an election-year tax debate that has already produced legislation.

The state enacted a 9.9% income tax scheduled to begin Jan. 1, 2028, generally applying above a $1 million annual threshold. The Department of Revenue is developing implementation guidance.

Imagine Denise, a hypothetical executive approaching retirement. She anticipates substantial compensation and is considering a large Roth conversion.

Her advisor should examine the years together.

“Before we decide when to recognize this income, let’s compare the federal and state consequences under the scheduled rules.”

That could involve evaluating a conversion before the effective date, retirement timing or compensation elections that are legally available.

It does not mean accelerating every dollar.

An earlier transaction could push Denise into a higher federal bracket or create other costs. Counsel must confirm how particular income items, deductions and credits are treated.

The objective is to improve her total result.

Federal income surtax: The client who becomes wealthy for one year

The proposed Millionaires Surtax Act would add 10 percentage points to income above $1 million for individuals or $2 million for married couples, including investment income. It remains a federal proposal.

Victor and Angela, hypothetical business owners, might dismiss it.

“We don’t make $2 million.”

But they are preparing to sell their business.

A large gain, combined with other income, could place them above a threshold they rarely approach.

The advisor’s question becomes:

“Are we planning around your usual income, or the income you’ll recognize in the year you sell?”

Review the projected return before the sale becomes binding. Examine eligibility for existing exclusions, installment treatment, charitable arrangements and the timing of other distributions.

An installment sale might spread eligible gain, but it introduces collection risk and exposure to future tax rates.

The recommendation must account for what the couple keeps, when they receive it and how secure the payments are.

Estate taxes: When the definition of exposure changes

The proposed Strengthen Social Security by Taxing Dynastic Wealth Act would reduce the estate exclusion to $3.5 million and increase the top transfer-tax rate to 45%. Current federal law provides a $15 million basic exclusion per person in 2026.

Consider Carol, a hypothetical widow with an $8 million estate.

A substantially lower exemption could change her planning needs, even if she has no current federal estate-tax liability.

Her advisor might say, “Let’s determine what you need to retain before discussing what you could transfer.”

Compare lifetime gifts, inherited basis treatment, trust arrangements and estate liquidity.

Appropriately structured life insurance might help fund a future obligation. It does not eliminate that obligation itself.

Carol’s independence comes first. The transfer plan should support it.

Annual wealth taxes: A different problem requires different planning

The proposed Ultra-Millionaire Tax Act of 2026 would generally impose a 2% annual tax on net wealth above $50 million, with a higher rate above $1 billion.

Suppose a hypothetical family has $75 million of taxable net wealth under the proposal’s definitions.

At 2% on the $25 million above the initial threshold, the illustrative annual amount would be $500,000.

An advisor should examine how that expense could affect distributions, investments and family commitments.

Ask, “If this became an annual expense, which part of your future would you want protected first?”

Then stress-test the plan.

A strategy that reduces taxable income may do little for a tax measured by net wealth. Trusts, retirement accounts and entity ownership must be evaluated under the specific proposal rather than assumed to provide exclusions.

Where the low-hanging fruit is

The first opportunity is often sitting in information the client already has.

A tax return. A retirement statement. A property assessment. A business valuation. An estate document that hasn’t been reviewed in years.

Start with the decisions approaching soonest:

• If a major sale is approaching, then project the entire tax year before signing.
• If retirement creates lower-income years, then examine measured conversions and withdrawal choices.
• If a second home creates rising expenses, then review its use, valuation and funding.
• If family wealth lacks available cash, then build a liquidity plan before it is needed.

Bring the client’s tax professional and attorney into the conversation around a shared set of numbers and priorities.

This is where an advisor becomes a bridge: between a headline and its household consequence, between separate professionals and a coordinated plan, between accumulated wealth and the future that wealth was meant to provide.

Ask the client:

“If we could identify where you’re paying unnecessarily, preserve more choices and help your family keep more of what you built, would that be worthwhile?”

Then show them where to start.

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