For Some Clients, Mid-Year May Be The Most Appropriate Time To Use Tax Strategies Such As Loss Harvesting, Charitable Giving And Estate Planning
Tax season isn’t just in the run up to April 15 – it’s year-round, especially for ultra-high net worth (UHNW) clients. Strategies such as tax loss harvesting and charitable giving are generally considered appropriate at year end, but this isn’t necessarily true. And as the calendar flips steadily towards December 2025 without an extension of the estate tax provisions that took effect in 2018, advisors need to examine the potential increased tax liability for their UHNW clients.
We caught up with Dean Deutz, Private Wealth Consultant at RBC Wealth Management U.S., to unpack mid-year UHNW tax issues and how advisors can navigate clients through them. Our questions and his answers follow.
WSR: What are some tax-efficient strategies for managing a UHNW client’s portfolio?
Deutz: A lot can happen in six months, so it’s important for financial advisors to check in with their clients mid-year to review their investments and wealth plan. That discussion should include assessing their tax situation.
I suggest reviewing investment portfolio interest and dividends to determine if the client has a logical mix of tax-exempt municipal bonds and dividend paying stock versus growth stocks based on their federal and state income tax brackets.
If markets are volatile, it may be worth considering tax-loss harvesting. This strategy may make sense if you believe that specific positions may no longer be a good fit for the client’s portfolio. Be sure to comply with wash sale rules if the client intends to repurchase the holding at a later date.
A Roth IRA conversion can be more effective if done at the right time.
A Roth IRA conversion can be more effective if done at the right time. This may be an advantageous time to convert what they can.
WSR: Why should conversations focused on loss harvesting take place now, rather than wait until closer to year’s end?
Deutz: Losses occur and can be harvested at any time throughout the year, not just at year end. So when should an investor time it? It all depends on market conditions and the needs of the individual investor.
When rebalancing, there is always a trade-off between achieving the original strategic asset allocation and minimizing tax costs. In many cases, the tax costs may outweigh the expected benefits.
The more frequently you review a client’s portfolio for tax-sensitive rebalancing to capture losses, the better. Doing it at the end of year is good, and doing it during the year is potentially even better.
The more frequently you review a client’s portfolio for tax-sensitive rebalancing to capture losses, the better.
Tax-loss harvesting may not be the right choice for every client, and it does have some risks. For example, securities with losses may represent holdings that diversify a client’s investments, in which case removing them could change the makeup of their portfolio.
WSR: How can UHNW clients leverage charitable giving strategies mid-year to maximize their tax benefits and align with their philanthropic goals?
Deutz: Spreading a client’s giving throughout the year, not just at the end, can be beneficial to both the client and the charitable organizations they support. Here are three different, tax-effective forms of charitable gifting that can be implemented at any time:
Qualified charitable distributions from a traditional IRA: This allows donors to reduce taxable income, achieve charitable giving goals and satisfy required minimum distributions all in one transaction.
Setting up a donor-advised fund: Individuals, families or organizations can make charitable contributions to eligible charities, receive an immediate tax deduction, recommend grants from the fund to specific organizations and direct how the funds are spent.
Creating a charitable remainder trust: Rather than selling assets that would be taxed once liquidated, the investor puts them in a trust to benefit a charity in the future. In the meantime, income generated from the asset can be distributed to non-charitable beneficiaries.
WSR: What are the key indicators to monitor to adjust estate planning strategies mid-year?
Deutz: One key to estate planning is flexibility. We know laws continue to change and clients need to be able to modify their plan based upon a new environment or changes in their personal situation and net worth. They should not put off estate planning. Bad things sometimes happen when you least expect it. Be certain your clients are protected.
Review the plan periodically with your clients and their tax and legal professionals. Make sure that major life events, such as changes in marital status, beneficiaries or net worth are reflected in their estate plan.
Many of the benefits from the Tax Cuts and Jobs Act (TCJA) of 2017 are expiring after 2025. The TCJA provided estate tax relief through an elevated exemption that is now $13.61 million per individual. That would be reset to about $7 million in 2026, as adjusted for inflation. The decedent’s estate will pay a 40% estate tax on any assets above the exemption level.
The estimated tax bill for a $13.61 million inheritance in 2026 could be about $2.65 million.
With proper planning, the hypothetical estate tax on a decedent’s $13.61 million estate transferred to their heirs this year could be $0. The estimated tax bill for a similar inheritance in 2026 (unless new legislation passes by Dec. 31, 2025) could be about $2.65 million, and this does not include any potential state estate taxes. An estate planning attorney can help your clients develop strategies to mitigate any tax burden on their heirs.
Michael Madden, Contributing Editor and Research Analyst at Wealth Solutions Report, can be reached at mmadden@wealthsolutionsreport.com
