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Prepare Your Portfolio Now for Tax Code Changes

Tickers in this article: NFS

If you're owner of a pass-through entity such as an S Corp, partnership or LLC you may also want to ask whether it makes sense to accelerate receivables into the current year.

Gift and estate taxes: If you're concerned about passing significant assets to your heirs, you should take note that the gift and estate tax exemption is scheduled to shrink from $5.12 million to $1 million, creating potentially significant new tax exposure for many.

Ask your adviser:

  • Should I set up an irrevocable life insurance trust before current exemption levels expire?
  • If so, does it make sense to buy an annuity inside the trust to pay premiums on the life policy?

A critical component of the conversation with your financial adviser should focus on your tax diversification strategy. This means allocating a portfolio to assets that are taxable now, later or may never be taxed. You may be able to avoid a worst-case scenario by placing your investment eggs in more than one tax basket.

As you can see, there are many portfolio adjustments worth considering -- some of which may make sense for your portfolio, some may not. That's why the time is now to sit down with a good financial adviser who understands you and your goals. Don't wait for laws to change and potential opportunities to expire before having this critically important conversation.

Eric Henderson, FSA, MAAA, is senior vice president of individual products and solutions for Nationwide Financial (NFS) . Nationwide does not provide tax advice. Tax advice should be sought from a tax professional such as a CPA.