SML Planning Minute

Episode 246 – Do you have enough money to be considered wealthy? A recent survey by Charles Schwab and Company has the answer.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, how much money do you need to be considered wealthy?

Let’s just say that a million dollars isn’t what it used to be. And unlike with previous generations, being a millionaire doesn’t necessarily mean you’re rich. But how much is a lot of money? A recent survey by Charles Schwab & Co., Inc., tried to quantify it.

The study, published in June 2023, came up with a specific answer: on average, most people would consider you wealthy with a net worth of $2.2 million or more.[1]  But the details reveal some glaring discrepancies. For one thing, 48 percent of all respondents said they feel wealthy today, even though their average net worth is just $560,000.

There are some significant generational differences as well. The study of 1,000 respondents broke down the generations as follows: Gen Z, or people born between 1997 and 2001; Millennials, or people born between 1981 and 1996; Gen X, or people born between 1965 and 1980; and Baby Boomers, or people born between 1947 and 1964.

Whether they are considered numerically wealthy or not, Millennials are the most likely to say they “feel” wealthy, with 57 percent of them saying so. Baby Boomers are the least likely at 40 percent.

Perhaps not surprisingly, younger generations are far more likely to use social media, not only to see how others around them are doing, but also to find some financial advice. 59 percent of Gen Z and Millennials say they follow influencers who share financial advice on social media. Only 13 percent of Boomers do this.

The study has its limitations. For example, the study does not consider regional differences. In other words, $2.2 million can be worth a lot more or a lot less depending on where you live. The cost of living in New York, Massachusetts and Hawaii is more than 40 percent above the national average. It’s more than 10 percent below the national average in Mississippi, Iowa, Oklahoma and Alabama.[2] 

How much work have people done to protect the wealth they have? Only 35 percent indicated that they have determined their financial goals and have documented them in a formal plan.  Why so low? Nearly half of the respondents feel they don’t have enough money to need a plan. Some of the other reasons include that they feel it’s too complicated to create one, they don’t have enough time to develop one, or they haven’t had a major life event that requires one.

So how is it that almost half of the respondents said that they consider themselves wealthy when few of them actually meet the financial qualification? Maybe it’s because for most people, wealth goes beyond simple dollars and cents. 

According to the report, “Americans generally choose non-financial assets when asked to choose which better describes wealth.”[3]  This includes having a fulfilling personal life, not having to stress over money and enjoying experiences. All of these non-monetary concepts were preferred by 70 percent or more of respondents when compared to a monetary concept, such as having more money than most of the people they know. 

All this just shows how conflicted we are when it comes to wealth. True financial wealth, it seems, is less important than other types of wealth, like family and community connections. Perhaps this is the good news.

[1] Charles Schwab & Co., Inc. “Schwab Modern Wealth Survey, June 2023.” Aboutschwab.com. https://www.aboutschwab.com/schwab-modern-wealth-survey-2023 (accessed July 27, 2023).

[2] Kissell, Chris.  “Cost of living comparison by state.” Insure.com.   https://www.insure.com/cost-of-living-by-state.html (accessed July 28, 2023).

[3] Charles Schwab & Co., Inc. “Charles Schwab Modern Wealth Survey2023.” Aboutschwab.com.   https://content.schwab.com/web/retail/public/about-schwab/schwab_modern_wealth_survey_2023_findings.pdf (accessed July 28, 2023).

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 245 – The effective date of the Corporate Transparency Act, January 1, 2024, is nearly upon us. Are you affected and, if so, prepared to comply with its mandates and regulations?

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode: Are You Ready for the Corporate Transparency Act Starting January 1, 2024?

On January 1, 2021, the National Defense Authorization Act of 2021 (“NDAA”) was passed by Congress over the veto of President Trump. Included in the NDAA was the Corporate Transparency Act (“CTA”), designed to develop a more robust regulatory framework to combat money laundering and tax evasion activities using potentially anonymous entities. The main requirements of the CTA are the full disclosure of the identities of the individual owners of an entity, or those who control the entity as beneficial owners. Reporting occurs when the entity is created or when there is a change of ownership or control. The CTA will also create a national registry of entities and their owners.

On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”), which will maintain the registry and to whom the reporting will be made to, issued final regulations. These final regulations have an effective date of January 1, 2024. For entities that have existed prior to that date, the deadline to file the required information to FinCEN is January 1, 2025. For entities created after the effective date, the required reporting must be done within 30 days of creation of that entity.

The CTA is very complex and has a broad reach. The final regulations provide details on the entities that must report and what those reporting requirements are. Entities that must report include domestic and foreign corporations, limited liability companies, limited partnerships and other business entities registered to do business in one of the states or in the U.S. This would include most small businesses other than sole proprietorships. Owners and beneficial owners would include any individual that, directly or indirectly, exercises substantial control over a reporting company, and is an owner or controls at least 25% of the ownership interests of the company. Beneficial ownership interests include not only equity in a company, but also capital or profits interests, convertible rights, warrants or options to acquire equity or capital.

Information that must be reported to FinCEN includes the full legal name and any “doing business as” names of the entity, the principal place of business, tax identification numbers and the individual beneficial owners of that entity. Information on the beneficial owners include similar information as required from the reporting entity as well as information from a non-expired government issued document, such as a U.S. passport or driver’s license. Any changes to this information must also be reported within 30 days of the change.

Many legal commentators believe the CTA overreaches and may be unconstitutional. Nevertheless, it is currently the law, and many businesses are not prepared for it. For high-net-worth families doing complex estate planning, the CTA may also impact their planning.  Trusts are commonly created for estate planning purposes.

Trusts often own assets, such as corporations and limited liability companies, which would require reporting for the purposes of CTA. Trust beneficiaries may be deemed beneficial owners of these entities and, therefore, would be required to fulfill reporting requirements. The final regulations include examples of when a trust beneficiary would be deemed a beneficial owner of interests in a reporting company, including trust beneficiaries who have the right to demand distributions or withdraw assets, or are the sole permissible recipient of income and principal from a trust. Families that create LLCs to hold family real estate or other investments may also be subject to the CTA reporting requirements.

Failure to comply with the CTA may result in severe civil and criminal penalties, including fines of $500 per day up to $10,000 and up to two years of imprisonment.

The CTA casts a wide net and is purposefully broad. Not only are the regulatory provisions new, but they can also be very confusing and uncertain in their application. Attorneys and accountants may not be fully versed in the CTA’s application. Therefore, you should consult with your tax or legal advisor as soon as possible to determine how the law and its regulations impact your own situation.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 244 – When they’re facing a significant expense, the wealthy have a special technique they use to access cheap cash.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode: How the Wealthy Borrow Cheap Cash.

Even the wealthy need to raise cash from time to time. A big tax bill, a major purchase, a wedding, or a college tuition payment are just some of the reasons. But they often do something that most people can’t: They borrow against their investment portfolio.

Let’s take a quick look at what some large investment account holders do. Programs vary from one bank, or investment advisory firm, to another, but investors with large portfolios can generally borrow at least 50% of their total account value. In fact, interest rates on these types of loans are generally lower than the rate on a personal loan or a home equity line of credit.

In effect, this type of loan allows a borrower to leverage their portfolio, using their securities as collateral, without having to sell their investments. Thus, they can raise cash without the transaction fees or capital gains taxes that may be due when selling some of their securities.

Does a securities-based loan make sense? The answer is: Sometimes. It only works well if you make more money on the investments than the interest rate you would pay on the loan.

This is certainly not for everybody. The risk of such a strategy should be obvious: You could be wrong about your portfolio. If it goes down while the loan is outstanding, you could end up losing a lot of money. Worse still, the lender can demand immediate repayment if there is a significant drop in the value of the assets that are used to collateralize the loan.

Interest rates on these types of loans are almost always variable. As with any variable rate, there is a risk that the rate could go up as general interest rates increase. The initial rate will vary from firm to firm, and rates are often tied to the amount of money you have invested at that particular firm. In most circumstances, the interest is not tax deductible.

How common is this strategy? According to a survey conducted earlier this year by Broadridge Financial Solutions, Inc., only about 5 percent of wealth management accounts are used to collateralize this type of loan. But Broadridge expects this percentage to double in the next three years.[1]

And how much money do you need to get started? The best rates are generally for account holders with a portfolio of at least $2.5 million.[2]

That’s likely too much for most investors.  But there’s an alternative that’s available even if you don’t have a big portfolio: their permanent life insurance policy. Some policy owners can use the ability to borrow against their life insurance policy to finance major purchases. Up to 90 percent or more of the policy cash value can be available quickly at a modest cost.

The idea is driven by a concept called “opportunity cost,” or the notion that whether you realize it or not, you finance everything you buy. If you use available cash to purchase a new car, you’re not going to pay interest on a car loan, but you are giving up the interest or dividends that the money would have produced for you.

One advantage to this strategy is that it can be done quickly and requires relatively little paperwork.  When borrowing against the cash value of a life insurance policy, the transaction can often be completed with one simple phone call. It is important to consider the policy loan interest rates which can be fixed or variable.

When it comes to your life insurance options, your Security Mutual Life insurance advisor can help you sort through your options and help get the process started. Your advisor will assemble your team and coordinate with your attorney and tax professional to review your situation and to determine the plan and strategies that are appropriate for you and your family. 

[1] Broadridge Financial Solutions, Inc. “Securities-Based Lending Industry Report 2023.” Broadridge.com.
.https://www.broadridge.com/_assets/pdf/broadridge-sbl-survey-report-march-2023.pdf. Accessed July 11, 2023.

[2] Wells Fargo Advisors Financial Network, LLC, “A Guide to Securities-Based Borrowing” wellsfargoadvisors.com. https://www.wellsfargoadvisors.com/why-wells-fargo/products-services/lending/securities-based.htm. Accessed July 11, 2023.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 243 – Estate planning is the process of protecting your wealth and transferring a legacy to your heirs in the manner you wish. Even the rich and famous fail to plan, resulting in disaster. Everyone needs a will and estate plan.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

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Episode 242 – IRS provides additional relief to individuals who inherited traditional IRAs in 2020 or after and failed to take RMDs, and to those who mistakenly took RMDs in 2023 when they didn’t have to.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode: IRS Provides Additional Relief for RMDs in 2023.

On December 20, 2019, the “Setting Every Community Up for Retirement Enhancement” Act (SECURE Act) was enacted into law. The SECURE Act changed the age when an individual needed to start taking required minimum distributions (“RMDs”) from age 70 ½ to 72 years. For inherited IRAs, the SECURE Act also eliminated the Stretch IRA concept, which allowed beneficiaries to “stretch” distributions over their life expectancies.  Instead, what is commonly known as the “10-year rule” was installed. For those inheriting IRAs in years 2020 and later, the remaining account balance of an inherited IRA is required to be distributed to designated beneficiaries by December 31 of the tenth calendar year after the date of death, unless the designated beneficiary qualifies as an “eligible designated beneficiary,” a new term created by the SECURE Act. Eligible designated beneficiaries include the spouse, a disabled or chronically ill beneficiary, and a beneficiary who is not more than 10 years younger than the decedent IRA owner. They can continue to take distributions from inherited IRA accounts over their life expectancies, subject to certain other rules that we won’t discuss here.

Since the passage of the SECURE Act, most tax professionals and indeed, the IRS itself, interpreted the 10-year rule to mean that when the participant died, the designated beneficiary did not need to take any distributions from the IRA until the end of the tenth year, following the participant’s death.[i]

On February 23, 2022, however, the IRS released proposed regulations containing a big surprise. The proposed regulations provided that if the plan participant died on or after her required beginning date (i.e., age 72), then under the 10-year rule, the designated beneficiary is required to take required minimum distributions in years one through nine, based on their life expectancy, and the remaining account balance in year ten. If the plan participant died prior to her required beginning date, then under the 10-year rule, the designated beneficiary is not required to take RMDs, but must take the account balance out by the end of year ten.

Of course, the legislative changes and unanticipated IRS position on the required minimum distributions during the 10-year period, caused widespread confusion and anxiety that wasn’t helped by the failure of the IRS to issue final regulations in 2022. Fortunately, on October 7, 2022, the IRS issued Notice 2022-53 waiving penalties on missed RMDs for 2021 and 2022 on IRAs inherited from an IRA owner who died in 2020 and 2021. Final regulations were still not issued thus far in 2023. Instead, on July 14, 2023, the IRS issued Notice 2023-54 which, once again, waived penalties on missed RMDs in 2023 on inherited IRAs. That also applies to IRAs inherited from IRA owners who died in 2022.

This latest IRS Notice also provides relief to taxpayers and administrators for a new problem for regular RMDs by IRA owners. On December 29, 2022, the Consolidated Appropriations Act, 2023 (“the Act”) was enacted and it included the provisions for Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022 (commonly dubbed “SECURE 2.0”).  SECURE 2.0 increased the age for individuals to commence taking RMDs from age 72 to age 73, if attained in 2023 or later (and to age 75 if attained in 2033 and later). Because of this new age change to take RMDs, some taxpayers mistakenly took RMDs when they didn’t have to. Normally, RMDs may not be rolled over, but this IRS Notice allows taxpayers to rollover the distributions that were not required, so long as it is done by September 30.

As you can tell, it is a very confusing and complicated process with respect to whether RMDs are required to be made or not for those who recently attained the ages of 72 or 73, or for those who recently inherited an IRA. Note, however, that if you were subject to RMDs before all these new legislative changes occurred, nothing has changed. You are still required to take your RMDs for 2021, 2022, and 2023. Therefore, you should consult with your tax or legal advisor with regard to your own situation.        

[i] In the 2021 version of IRS Publication 590-B, the IRS advised: “The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2021, the beneficiary would have to fully distribute the IRA by December 31, 2031. The beneficiary is allowed, but not required, to take distributions prior to that date (emphasis added).”

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 241 – Whether you’re hoping to achieve financial independence and retire early as part of the FIRE movement or later, Millennials and members of Gen Z and Gen X need to prepare for retirement now.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

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Episode 240 – Life insurance is the ideal tool to optimize an estate plan. It provides the money at the right time to pay taxes, replace wealth and to enhance and perpetuate a family legacy. It also makes various estate planning strategies more efficient.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

• All News & Articles

Episode 239 – The ultra-wealthy are rooting for Charles and Kathleen Moore in their appeal to the U.S. Supreme Court to fight a tax.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode: The Ultra-Wealthy Are Rooting for Charles and Kathleen Moore!

On June 26, 2023, the U.S. Supreme Court announced that it will hear the appeal of Charles and Kathleen Moore, Washington State residents, who are fighting a $14,729 tax bill, in the 2023-24 term.[1]  You may be asking – so what? Also, why are they taking the dispute all the way to the Supreme Court on such a relatively small amount of money? Attorneys’ fees and expenses are surely many times higher.

If you’re ultra-wealthy, you may want to pay close attention to this case.

The Tax Cuts and Jobs Act of 2017 included a provision called the Mandatory Repatriation Act (the “Act”). This provision taxes U.S. citizens on accumulated foreign earnings of foreign corporations that they may own, even if those earnings are never distributed. The Moore’s owned shares of KisanKraft Machine Tools Private Limited, an India-based company founded by a friend. The company reinvested all profits into the company, so the Moore’s never received any income in the form of dividends from the shares, nor did they realize any capital gains from the sale of shares. The IRS, however, assessed a tax based upon the Act.

The Moore’s contested the tax bill in U.S. District Court for the Western District of Washington on the theory that the law violated the Sixteenth Amendment of the U.S. Constitution.[2] The Sixteenth Amendment states: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” The Moore’s argued that since they never realized any income from the ownership interest, there could be no income tax. The tax was obviously not apportioned among the states on an equal per capita basis, so if it was not an income tax, the tax was unconstitutional.

The Moore’s lost their case in District Court. They subsequently lost an appeal in the U.S. Court of Appeals for the Ninth District.[3] They were also denied a rehearing before the full judiciary of the Ninth District.[4]

So, why is this important to the wealthy? Throughout the last several years, there have been several proposals by Democratic members of Congress to pass a tax based solely upon wealth. President Joe Biden has also proposed a billionaire’s minimum tax in his 2023 budget proposal. Many states have also proposed wealth taxes.[5] The common theme of these wealth taxes is that the wealthy are not paying their fair share of taxes, and therefore, a tax based upon a person’s net worth, or the market value of that person’s assets, even though there are no realized gains, would remedy that. These proposals are also not based upon income earned, although there are several other proposals commonly dubbed the “Millionaire’s Tax”.

There are also past U.S. Supreme Court cases that imply that gains must be realized.[6] Depending upon how the Court addresses this case, it may fire up these wealth tax proposals or extinguish them before they become law. Stay tuned!

[1] Moore v. United States (Docket 22–800); https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/22-800.html

[2] Moore v. United States, CASE NO. C19-1539-JCC (W.D. Wash. Nov. 19, 2020)

[3] Moore v. United States, 36 F.4th 930 (9th Cir. 2022)

[4] Moore v. United States, 53 F.4th 507 (9th Cir. 2022)

[5] See generally: Dore, Kate. “There’s a growing interest in wealth taxes on the super-rich. Here’s why it hasn’t happened.” CNBC.com. https://www.cnbc.com/2022/04/09/theres-a-growing-interest-in-wealth-taxes-on-the-super-rich.html (accessed June 30,2023) Taylor, Kelley. “Biden Wants a Wealth Tax: Should Billionaires Pay More?” Kiplinger.com. https://www.kiplinger.com/taxes/biden-billionaire-wealth-tax (accessed June 30, 2023) Walczak, Jared. “Wealth Tax Proposals Are Back as States Take Aim at Investment.” Taxfoundation.org https://taxfoundation.org/state-wealth-tax-proposals/ (accessed June 30, 2023)

[6] See Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426 (1955); Eisner v. Macomber, 252 U. S. 189 (1920).

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.