Wealthy brace for higher U.S. taxes
BOSTON (Reuters) - Rich Americans expecting to face an era of higher taxes are starting to change their investment strategies to soften the blow.
But wealth managers told the Reuters Wealth Management Summit that the well-off are more reconciled than rebellious about a change in the fiscal climate.
They are preparing to reap capital gains and are likely to show less interest in high-dividend paying stocks before a possible tax increase in 2010. High-growth companies may benefit as could hedge funds and municipal bonds, the managers said.
"There was so much negativity from our clients earlier about the tax rate, but as I speak now with our clients about the taxes going up, I think there's a feeling that it's inevitable," said Gail Cohen, head of global wealth management at Fiduciary Trust Company International.
Many of the tax breaks given to the wealthy under the Republican administration of U.S. President George Bush are set to expire in the next few years and Democrats, who control Congress and are seen as front-runners in the 2008 presidential elections, are seen as more likely to raise taxes.
In 2010, the long-term capital gains tax on securities is slated to go up to 20 percent from the current 15 percent and tax on qualifying dividend income would go up to 35 percent from 15 percent.
"Anybody following the political landscape sees that there is a sort of sea-change coming. And there's going to be some more taxes," Dean Junkans, chief investment officer of Wells Fargo's wealth management division, told the summit.
"Tax rates are as low as they are going to go, right now. So if you are sitting on concentrated positions, you should be taking some capital gains now because I don't think those taxes are going lower, and the risk is they are going higher," he said.
Estate planning will also be a big focus as the chances of a repeal of the estate tax on inheritances have dimmed in recent years.
Cohen of Fiduciary Trust, part of asset manager Franklin Resources (BEN.N), has $11 billion in wealthy clients' assets. She said dividend-paying stocks will lose their luster as the favorable tax treatment for dividend income goes, but tax-exempt municipal bonds might win more admirers.
"Hedge funds look a little bit more attractive as well, because right now from a tax perspective, hedge funds are pretty unattractive for most of our clients," Cohen added.
Brian Moynihan, president of global wealth and investment management at Bank of America Corp (BAC.N), said while his wealthy clients were concerned about the likelihood of higher taxes, the issue was not a "preoccupying thing" for them.
"The people who worried about it before worry about it a lot more now," Moynihan said. (For other news from the Reuters Wealth Management Summit, click here)
