Real estate investors tend to think in long time horizons. They buy carefully, improve patiently, and hold through cycles. But eventually, a familiar question arises: “If I sell, I’ll owe a significant capital gain — and depreciation recapture. What are my options besides just writing a large check to the IRS?”

For many investors, the traditional answer has been a Section 1031 exchange. But as portfolios grow and properties mature, investors often find themselves wanting less management burden, more diversification, or more estate planning flexibility — without triggering immediate taxation.

Two structures increasingly discussed in these situations are:

• Delaware Statutory Trusts (DSTs)
• Section 721 UPREIT exchanges

Each approach can serve different strategic goals. This paper intends to outline how they work, when they may be useful, and what tradeoffs to consider.

All in the Family – A Client Scenario

Several years ago, George and Weezie Jefferson sold their chain of dry-cleaning businesses but retained ownership of the land and the buildings. Those parcels have provided an income stream for their Upper East Side lifestyle while appreciating significantly over time.

Their adult son, Lionel, has his own electrical engineering business and no interest in managing the family’s real estate assets. As George ages, he worries about environmental liability, concentration risk, tenant credit quality, and the increasing complexity of management. But selling these assets at his advanced age would result in staggering capital gains tax liabilities. George wants to simplify but not at the cost of unnecessary erosion of capital due to taxes.

Option 1: Delaware Statutory Trust (DST)

A Delaware Statutory Trust is a legal structure that allows multiple investors to own fractional interests in institutional real estate. Importantly, the IRS recognizes qualifying DST interests as “like-kind” property for purposes of a 1031 exchange. A DST is not an alternative to a 1031 exchange; it is a specific type of replacement property permitted in a 1031 exchange. When George sells the property and completes a 1031 exchange, he acquires a fractional interest in a DST property, deferring both capital gain and depreciation recapture.

Why the Jeffersons Might Consider a DST:

• Passive Ownership: No tenants, no chemicals, no remediation costs.
• Diversification: Instead of rolling into one replacement property, George can diversify across multiple assets, geographies, or sectors.
• Estate Planning Continuity: DST interests receive a step-up in basis at death, potentially eliminating deferred gain.
• Simpler Transition Out of Active Management: For aging investors, DSTs can function as a “glide path” from active landlord to passive real estate owner.
• Preserves 1031 Optionality: When the DST eventually sells the underlying property, George may execute another 1031 exchange (into another DST or direct real estate). Alternatively, he could pursue a staged transition into a 721 UPREIT structure.

But DSTs are not perfect solutions either, and George should also consider the potential limitations:

• Illiquid (typically 5–10 year hold periods)
• Limited control
• Dependent on sponsor quality
• Fees and structure complexity
• Still real estate risk

If George is prioritizing tax deferral and passive ownership over control, then a DST might be a good approach. However, if income and/or charitable planning are important components as well, then a DST might not be the ideal solution.

Option 2: Moving On UPREIT

A Section 721 (UPREIT) exchange allows an investor to contribute property into an operating partnership (often affiliated with a REIT) in exchange for operating partnership units (OP units) rather than cash.

Unlike a 1031 exchange, there is no requirement to acquire like-kind replacement property, and the contributed property becomes part of a larger, diversified real estate platform. The investor defers gain at contribution. The OP units typically generate periodic cash distributions, which are often taxed primarily as ordinary income. Over time, OP units are typically redeemable for REIT shares. When those shares are sold, the investor recognizes the deferred gain from the original property contribution, which commonly is a combination of deferred capital gain from the original property and depreciation recapture at 25%.

Once converted, the REIT shares can then be sold to provide an additional source of liquidity. Possibly subject to transfer restrictions in the operating agreement, OP units may be contributed to a charitable vehicle like a Donor Advised Fund, allowing the donor to avoid recognition of the built-in gain while receiving an income tax charitable deduction equal to fair market value. (George has been a charitable donor to organizations serving impoverished residents in his childhood neighborhood and to various military veteran causes.)

Why George Might Prefer a 721 UPREIT

• Diversification at Scale: Instead of owning one building, the investor now owns a share of a diversified portfolio.
• Estate Planning Flexibility: If OP units are held until death, heirs may receive a step-up in basis. But this is not an all-or-nothing decision.
• Potential Liquidity Over Time: Unlike DSTs, OP units often provide optional future liquidity through conversion.
• Institutional Management: Management transitions to a professional platform.

Other Considerations for a 721 UPREIT: A 721 exchange introduces its own complexities:

• Loss of Control: The investor becomes a minority owner in a larger platform.
• Sponsor Alignment Risk: Performance depends on management discipline and capital allocation decisions.
• Liquidity Is Taxable: Accessing principal through conversion and sale triggers recognition of deferred gain.
• Valuation Complexity: OP units are not publicly traded securities.
• Structural Restrictions: Transfer limitations may affect estate or charitable planning flexibility. Specifically, once an investor selects deferral via 721, then future 1031 exchanges are no longer available because partnership units would not qualify as like-kind property.
• Legislative Risk: As with any tax-deferral strategy, future tax law changes could alter outcomes.

Feature	DST (via 1031)	721 UPREIT
Immediate tax deferral	Yes	Yes
Management responsibility	None	None
Liquidity	Typically fixed hold	Gradual, optional
Charitable flexibility	Limited	More flexible
Estate step-up strategy	Yes	Yes
Control	None	None

Where This Fits in Broader Planning

For clients at our level, these decisions rarely stand alone. They intersect with:

• Concentration risk management
• Income needs in retirement
• Estate planning and generational transition
• Charitable planning (CRT, DAF funding opportunities)
• Overall portfolio allocation

In many cases, biting the bullet (i.e., paying the capital gains tax liability and redeploying the net proceeds in traditional public markets) may well be the most rational choice. Tax deferral should not override sound investment judgment. But for investors who want to preserve capital, simplify operations, and remain tax-efficient, DSTs and 721 exchanges represent meaningful structural alternatives.

A Word on Tax Deferral

Tax deferral can be powerful, but it is not a strategy by itself. In the absence of a step up in basis at death or a charitable transfer, deferral carries a risk of simply postponing gain recognition into a less favorable tax regime in the future. The decision to defer, exchange, contribute, or sell should follow a clear articulation of goals: income needs, diversification objectives, estate intent, and charitable priorities. The structure should serve the strategy, not the other way around.

A Structural Fork in the Road

A DST preserves participation in the 1031 exchange framework, allowing investors to continue exchanging into new real property over time. A 721 UPREIT contribution, by contrast, represents a transition out of the 1031 cycle and into long-term alignment with a specific REIT platform. While both structures defer tax, they create different future flexibility. The decision is less about deferral itself and more about whether the investor values continued exchange optionality or prefers institutional scale and simplified ownership. Once the 721 path is chosen, the ability to execute future like-kind exchanges is generally forfeited.

Final Thoughts

For George, the right choice may be less about maximizing return than simplifying life, reducing risk, and aligning assets with purpose. At a certain stage, the objective shifts from accumulation to stewardship — from building the portfolio to positioning it intentionally for the next chapter.

The appropriate path for any thoughtful investor depends not on the structure itself, but on how an asset fits within one’s broader personal, financial, and legacy goals. And of course, thoughtful coordination between tax counsel, legal advisors, and portfolio strategy is always essential.

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MBL Advisors Inc. is independently owned and operated.  Investment Advisory Services are offered through MBL Wealth, LLC, a Registered Investment Advisor.  For important information related to MBL Wealth, LLC, refer to the Client Relationship Summary (Form CRS) by navigating to http://mbl-advisors.com. Securities are offered through M Holdings Securities, Inc., a registered broker/dealer, member FINRA/SIPC. For important information related to M Holdings Securities, Inc, refer to the Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities. Insurance solutions are offered through MBL Advisors Inc.

Last quarter my partner Billy Morton covered some of the details necessary to create a buy-sell agreement.  As a follow-up we wanted to provide a deeper dive into funding a Buy Sell Agreement with some actual case studies that may be helpful to further understand the concepts.  A buy-sell plan provides protection for the business to continue based on a number or circumstances.  Our focus will be on the primary unforeseen triggers for buy sell agreements of death and disability of a shareholder of the business.

A buy-sell agreement is more of a contingency plan than a succession plan and provides a blueprint in case of emergency.  A well-structured plan will benefit all parties involved by providing a smooth transition for converting illiquid privately held stock into cash.  The surviving shareholders will be able to continue the business or have the option to possibly use some of the insurance proceeds to buy enough time to find an interested buyer.  The insurance proceeds can provide full value of the business for the estate/heirs of the deceased shareholder to provide income for survivors, estate settlement costs and possible estate taxes.

Most Buy Sell Agreements fall into one of two categories:  Stock Redemption Plan (sometimes called an Entity Purchase Agreement) or a Cross Purchase Plan with a few variations.

Stock Redemption Plan

In a Stock Redemption plan the Company (entity) buys the insurance on each shareholder and is the beneficiary of the policy.  Premiums paid by the Company are not tax deductible but policy proceeds (life insurance death benefits and disability benefits) are not taxable income as long as the participant as agreed to be insured.(1)  Upon a triggering event the Company receives the policy proceeds and redeems (purchases) the outstanding stock.  The redeemed shares are retired as treasury stock and not reissued.  The remaining shareholders own a larger percentage of the business but their cost basis remains the same.

Case Study

After a lengthy interview process by a consulting firm, MBL Advisors was engaged by an international distribution company to place $300 million of life insurance to fund a buy-sell plan for seven major shareholders.  The consultant required that the coverage should be split with two or three carriers for each shareholder.  The firm was able to leverage the underwriting results to create competition among carriers to obtain the best results for the Company.  Each shareholder engaged outside counsel to review the plan in addition to corporate counsel.

Disability and Life Insurance Case Study

The firm was referred to a national wholesale distribution company by a board member after successfully completing a management buy out.  Based on the arrangement only active employees could be shareholders in the Company.  The Company was in debt and did not want to take on additional debt to repurchase stock from a disabled or deceased shareholder.  We designed a plan to purchase $96M of disability buy out coverage on the top ten executives through Lloyd’s of London.  The policies will pay a lump sum disability benefit to the Company after a one year elimination period (waiting period) to provide the Company a tax free benefit to redeem the stock of the disabled executive.  The first $1.5M of coverage was issued on a Guaranteed Standard Issue basis without medical underwriting.  The Company concurrently purchased life insurance policies on the same executives using the same medical information to make it more convenient for each executive.

The Stock Redemption Plan was the best option in these cases.

Cross Purchase Plan

In a cross purchase plan each shareholder purchases a policy on the other individual shareholders.  The shareholder is the policyowner and beneficiary of the coverage and the Company bonuses the premiums annually.  In the event of a claim the individual shareholder receives the insurance benefits on a tax free basis and uses the proceeds to buy the outstanding stock from the estate of the deceased.  The surviving shareholder receives an increase in cost basis that can reduce future capital gains on a subsequent sale of the business.  When the business has more than two owners the number of policies needed to fund a Cross Purchase Plan can become problematic.  With two shareholders only two policies are required.  With three shareholders six policies are required (each shareholder buys a policy on the other two).  Four shareholders would need to buy a total of twelve policies (three policies per shareholder) so most elect a Stock Redemption plan.

Case Study

The firm was referred by a corporate attorney to a textile manufacturing company with a recent valuation of $24 million.  The company had three shareholders with an equal ownership percentage of the business.  The shareholders used the cross purchase method to purchase two $4 million policies on each shareholder.  The shareholders were similar in age so the premiums were relatively similar.  The Company bonused each shareholder the annual premium for each policy to fund the plan on an ongoing basis.

Alternative Situation Case Study

A healthcare services company received an updated valuation from an investment banker showing a current valuation of $200 million.  The business had two equal shareholders who were considering selling the business in the next three to five years.  As an alternative to funding the full valuation with life insurance the shareholders agreed to purchase $20 million on each partner in a cross purchase arrangement.  The logic behind the $20 million is it would be enough for the surviving partner to buy enough stock to be majority owner and hire additional resources to help run the business until it was stable enough to be sold.  Neither owner wanted to be forced to sell in a fire sale scenario.

In closing, a Stock Redemption plan is popular in larger businesses with multiple owners because only one policy is needed to fund the plan and in situations where there is a significant difference in premiums (owners are from different generations or health issues).  The long term benefit of a step up in cost basis is the most compelling reason to use a Cross Purchase plan.  A number of variations may be appropriate based on the specific goals of the shareholders.

• The Employer must meet the notice and consent requirements of IRC Section 101(j) and reporting requirements of IRC 6039I.

Case study results are for illustrative/informational purposes only and may not reflect the typical purchaser’s (client’s) experience and are not intended to represent or guarantee that anyone will achieve the same or similar results. This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your personal advisors. Information obtained from third-party sources are believed to be reliable but not guaranteed. #5281694

The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that MBL Advisors is not engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. MBL Advisors does not replace those advisors. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.

MBL Advisors Inc. is independently owned and operated.  Investment Advisory Services are offered through MBL Wealth, LLC, a Registered Investment Advisor.  For important information related to MBL Wealth, LLC, refer to the Client Relationship Summary (Form CRS) by navigating to http://mbl-advisors.com. Securities are offered through M Holdings Securities, Inc., a registered broker/dealer, member FINRA/SIPC. For important information related to M Holdings Securities, Inc, refer to the Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities. Insurance solutions are offered through MBL Advisors Inc.

Lifetime gifting strategies—such as transfers to Spousal Lifetime Access Trusts (SLATs) or other grantor trusts—are among the most powerful tools available for reducing future estate tax exposure. By transferring assets during life, families can shift future appreciation outside of the taxable estate while maintaining significant planning flexibility.

However, not all assets are equally well suited for lifetime transfer. In many cases, the choice of which assets to transfer can have a greater impact on long-term tax efficiency than the structure of the trust itself.

In our experience, evaluating a client’s balance sheet for gifting opportunities benefits from a structured but practical approach. The framework below outlines several key considerations we use when assessing which assets may be appropriate for transfer to a grantor trust.

This approach is not rigid or formulaic—every family’s situation is unique—but these principles often help guide an analysis and lead to a thoughtful outcome.

Key Factors When Evaluating Assets for Lifetime Transfers

When considering whether a particular asset should be transferred to a grantor trust, we typically evaluate four broad categories:

• Administrative Complexity: Certain assets introduce legal or operational complications when transferred. Examples include assets subject to debt, lender approvals, or restrictive agreements.
• Income Tax Characteristics: Because grantor trusts are generally ignored for income tax purposes during the grantor’s lifetime, the grantor remains responsible for paying the income tax on trust earnings. This feature can create significant planning advantages in the right circumstances.
• Valuation Opportunities: Some assets may qualify for valuation discounts when transferred in minority or illiquid form through family entities. These discounts can increase the efficiency of lifetime transfers.
• Access to Cash Flow or Personal Use: Assets that provide essential income for a family’s lifestyle—or assets that are primarily used personally—may not be appropriate candidates for transfer unless structured carefully.

Together, these considerations help determine which assets may provide the greatest planning benefit when transferred during life.

Assets That Are Often Less Attractive for Lifetime Transfers

While every situation is unique, certain types of assets frequently prove less suitable for lifetime gifting strategies.

• Encumbered Assets: Assets subject to significant debt often create unnecessary complexity. Transfers may require lender approval or modifications to loan documents, and personal guarantees can raise questions about additional gifts or retained interests. In addition, if the asset’s cash flow does not comfortably service its debt obligations, the structure may require ongoing contributions to support those liabilities.
• Cash and Cash Equivalents: Cash generally offers little transfer tax efficiency because it does not benefit from valuation discounts and has limited appreciation potential. Cash can still be useful in supporting certain strategies—for example, providing liquidity to a trust to fund insurance premiums or annuity payments—but it is rarely the most efficient primary asset for a wealth transfer.
• Highly Appreciated “Legacy” Assets Intended to Be Held Long-Term: If an asset is expected to be held until the owner’s death, transferring it during life may sacrifice an important tax benefit: the step-up in basis that typically occurs at death. In many cases, retaining highly appreciated legacy assets in the taxable estate can allow heirs to inherit them with a higher cost basis, reducing future capital gains taxes.
• Personal Use Assets: Assets such as primary residences, vacation homes, artwork, or collectibles often create valuation and administrative complications when transferred to trusts. Unless a specialized structure is used (such as a Qualified Personal Residence Trust, or QPRT), these assets are generally not ideal candidates for lifetime transfers.

Assets That Often Work Well for Lifetime Transfers

Other types of assets can be particularly effective when transferred to grantor trusts.

• High-Basis Assets with Significant Appreciation Potential: Assets that are expected to grow substantially in value can be excellent candidates for lifetime transfer. By transferring the asset today, future appreciation occurs outside of the grantor’s taxable estate. This concept—often referred to informally as “freezing” value for estate tax purposes—allows long-term growth to benefit future generations.
• Low-Basis Assets Expected to Be Sold During the Grantor’s Lifetime: Assets with significant unrealized gain can also work well in grantor trust planning if a sale is expected during the grantor’s lifetime. These situations may produce several advantages simultaneously:
• Potential valuation discounts when the asset is transferred in minority form
• Removal of future appreciation from the taxable estate
• The grantor’s continued payment of income tax on trust earnings, which effectively allows additional wealth to shift to the trust without additional gift tax
• This feature—sometimes referred to as the “grantor tax burn”—can meaningfully enhance the long-term effectiveness of the strategy.
• Assets That Support Valuation Discounts: Certain assets may justify valuation discounts when transferred through family entities or minority interests. Discounts for lack of control or lack of marketability, when supported by a qualified appraisal, can allow families to transfer greater economic value while reporting a lower taxable gift. Common examples include minority interests in closely held businesses, family investment partnerships, or other illiquid investment structures.
• Assets Producing Excess Cash Flow: Assets that generate income beyond what the grantor needs for personal lifestyle can also be good candidates for transfer. This is particularly true when the trust itself will have ongoing expenses, such as life insurance premiums. Transferring assets that produce surplus income can allow the trust to sustain its own obligations without requiring additional gifts.

A Simple Framework for Thinking About Asset Selection

In practice, one of the most helpful ways to evaluate assets is to consider two primary drivers of transfer efficiency:

• Future appreciation potential
• Ability to justify valuation discounts

Assets that combine both characteristics tend to offer the greatest planning leverage.

For example:

	Low Discount Opportunity	High Discount Opportunity
Low Appreciation Potential	Cash, bonds, stable income assets	Minority interests in stable real estate or investment entities
High Appreciation Potential	Concentrated growth equities	Closely held businesses, private company interests

Assets in the upper left quadrant (low/low) typically provide limited planning benefits. By contrast, the bottom right (high/high) are examples of assets with both strong growth potential and discount opportunities often provide the greatest opportunity for efficient lifetime transfers.

Execution Considerations

When transferring assets that qualify for meaningful valuation discounts, we often prefer an approach that combines a modest initial gift with a subsequent sale to the trust.

In this structure:

• The trust is first “seeded” with a gift of liquidity.
• The trust then purchases the discounted asset from the grantor in exchange for a promissory note.

This approach can offer several advantages, including:

• Preserving the client’s lifetime exemption
• Leveraging valuation discounts more effectively
• Retaining flexibility through the note structure

When a client has sufficient liquidity to implement this structure, it can be an especially efficient operational framework.

Conclusion

Lifetime transfers to grantor trusts can be a powerful component of a long-term estate planning strategy. But the effectiveness of these strategies often depends less on the structure itself and more on which assets are selected for transfer.

Assets with strong growth potential, valuation discount opportunities, and manageable administrative complexity tend to provide the greatest benefit. Conversely, assets that rely on future basis step-ups, generate essential lifestyle income, or introduce unnecessary complexity may be better retained in the taxable estate.

Thoughtful asset selection—combined with careful trust design—can allow families to move significant future wealth to the next generation while maintaining flexibility and tax efficiency along the way.

MBL Advisors Inc. is independently owned and operated.  Investment Advisory Services are offered through MBL Wealth, LLC, a Registered Investment Advisor.  For important information related to MBL Wealth, LLC, refer to the Client Relationship Summary (Form CRS) by navigating to http://mbl-advisors.com. Securities are offered through M Holdings Securities, Inc., a registered broker/dealer, member FINRA/SIPC. For important information related to M Holdings Securities, Inc, refer to the Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities. Insurance solutions are offered through MBL Advisors Inc.

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Recent federal legislation introduced a new investment vehicle designed to encourage long-term wealth building for American children. Informally referred to as “Trump Accounts,” these accounts combine a modest federal seed contribution with the ability for families and employers to contribute additional funds over time.

The underlying policy goal is simple: provide children with an early investment account that can compound over many years. Even relatively small balances invested during childhood have the potential to grow meaningfully over time.

For families and business owners, these accounts may represent another planning tool alongside existing strategies such as 529 education plans, custodial accounts, and family gifting strategies.

The following summary outlines the core features of the program and highlights several planning considerations.

Eligibility and Account Structure

Trump Accounts are established for the benefit of children who are United States citizens with valid Social Security numbers. Each child may have only one account.

Because beneficiaries are minors, the account must initially be opened and administered by a parent or legal guardian acting as custodian. While the parent controls the account during childhood, the child remains the beneficial owner of the assets.

The account transitions to the child’s control when the child reaches adulthood. At that point, the beneficiary assumes full authority over the assets and investment decisions.

Federal Seed Funding

A central feature of the program is a one-time federal seed contribution. For children born between 2025 and 2028, the federal government will deposit $1,000 into the account once it is established. This contribution is designed to ensure that every eligible child begins with at least a small investment balance.

Importantly, the federal seed funding does not count toward the annual contribution limits that apply to additional deposits made by families or employers.

Because these funds are invested from an early age, the program relies heavily on the power of compounding. Even modest returns over an 18-year horizon can significantly increase the value of the initial deposit.

Family Contributions

Parents, grandparents, and other family members may contribute to the account each year using after-tax dollars.

The current contribution limit allows up to $5,000 per child per year to be deposited into the account. This limit applies to all contributions combined, including both family and employer deposits.

Family contributions are not deductible for federal income tax purposes. However, the account grows on a tax-deferred basis, meaning dividends, interest, and capital gains inside the account are not taxed annually.

From a gift tax perspective, contributions are treated as gifts to the child. For most families this will not create complications, because the annual contribution limit is well below the federal annual gift tax exclusion. As a result, parents and grandparents can generally fund the account without using any lifetime gift and estate tax exemption.

Employer Contributions

One unique feature of Trump Accounts is the ability for employers to contribute to the accounts of employees’ children. Employers may contribute up to $2,500 per year per employee, subject to the overall $5,000 annual account contribution limit.

Employer contributions generally receive favorable tax treatment:

• The contribution is deductible to the employer as a business expense.
• The contribution is typically not treated as taxable income to the employee.
• The contribution is not subject to payroll taxes when structured properly.

For business owners, this structure creates an opportunity to offer a family-focused employee benefit that may be more tax-efficient than additional cash compensation. If adopted broadly, employer participation could meaningfully increase the growth potential of these accounts for participating families.

Investment Structure

Trump Accounts are designed to function as long-term investment vehicles rather than short-term savings accounts.

Assets are generally expected to be invested in diversified, low-cost investment options such as broad market index funds. Because contributions occur early in a child’s life, the investment horizon may extend nearly two decades before the beneficiary gains control of the account.

This long-time horizon allows for substantial compounding potential, particularly if the portfolio maintains exposure to long-term equity markets.

Planning Considerations

While the accounts are relatively simple, they introduce several potential planning opportunities:

• First, the accounts may serve as an early financial education tool. Parents who contribute regularly may use the account to teach children about investing, long-term planning, and the value of compounding.
• Second, grandparents may find the accounts appealing as a vehicle for modest annual gifts. Because contributions count toward the annual gift tax exclusion, they can be funded without consuming lifetime gift tax exemption.
• Third, business owners may consider whether employer contributions could serve as a differentiated employee benefit. A contribution to an employee’s child’s account may be perceived as a meaningful long-term benefit while remaining tax-efficient for the business.
• Finally, families should consider how Trump Accounts fit within a broader planning framework. In many cases they will complement rather than replace existing strategies such as 529 plans, which remain the most efficient vehicles for education-specific savings.

Final Thoughts

Trump Accounts represent a new attempt to encourage early participation in long-term investing. By combining federal seed funding with contributions from families and employers, the program seeks to create a simple framework for building financial assets beginning in childhood.

For many families the balances involved will remain relatively modest. However, the long investment horizon means that even small contributions may compound meaningfully over time.

As regulatory guidance continues to develop, advisors and families will likely evaluate how these accounts can complement existing education, gifting, and family wealth strategies.

MBL Advisors Inc. is independently owned and operated.  Investment Advisory Services are offered through MBL Wealth, LLC, a Registered Investment Advisor.  For important information related to MBL Wealth, LLC, refer to the Client Relationship Summary (Form CRS) by navigating to http://mbl-advisors.com. Securities are offered through M Holdings Securities, Inc., a registered broker/dealer, member FINRA/SIPC. For important information related to M Holdings Securities, Inc, refer to the Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities. Insurance solutions are offered through MBL Advisors Inc.

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Category: Financial & Tax Planning

A great mentor once told me, “The best thing about making money is getting to give it away!” Myriad reasons exist to give money away to charity, but tax mitigation generally shouldn’t be high on that list. Until the IRS imposes a 100% effective tax, from a purely economic standpoint a donor would retain more of their money by not giving it away. But, if someone is charitably inclined for one or more of the infinite great reasons to financially support charitable organizations, then being smart (i.e., tax efficient) about it is clearly advisable.

It’s in that vein that we look ahead to some coming changes to the tax code. Beginning in 2026, two specific provisions of the OBBBA will negatively impact the deductibility of charitable giving. As such, we are writing to suggest that altering one’s approach (i.e., by accelerating some giving in 2025) might be worth consideration.

How It Works

We did write about them both briefly in our recent Legislative Alert (One Big Beautiful Summary) summarizing several OBBBA provisions (see “Charitable Limits” section and footnote thereto). As mentioned briefly in that update, there are two provisions of OBBBA that may have a modest cooling effect on charitable giving for high wage earners beginning in 2026. One hems in the impact of the first dollars gifted, and the other imposes a 35% cap on the deductibility, regardless of whether a taxpayer is in the 35% bracket or higher.

The 0.5% Floor: The First Dollars Don’t Count

For individuals who itemize deductions (as opposed to those using the standard deduction, which will be $32,200 for married joint filers in 2026), the deductibility of charitable contributions only begins for charitable giving that exceeds 0.5% of the donor’s adjusted gross income (“AGI”).

As an example, a married couple with $400,000 of AGI and who gives $10,000 to charity would only be able to deduct $8,000 on their federal income tax return. That’s because the first $2,000 is under the 0.5% AGI floor.

The 35% Cap: The Benefit Shrinks at the Top

Itemized deductions, the most significant of which is the charitable deduction, will begin to cap out at 35% in 2026. For taxpayers whose income exceeds the 35% income tax threshold, this imposes a new limit on the deductibility of charitable giving. For 37% filers, the value of itemized deductions will be limited to a 35% marginal benefit, resulting in a 2% loss of value on the income tax benefits of charitable giving.

Into Action

Perhaps an example would illustrate the point better. Let’s assume Grant and Charity Goodwill are married taxpayers with annual earned income of $1,000,000 (including in 2025 and in 2026), and let’s further assume that the Goodwills believe in tithing (i.e., the practice of giving one’s income to charity). So they will give away $100,000 per year.

	Deductible Amount	Effective Tax Rate Applied	Tax Savings	After-Tax Cost of $100k Gift
2025 Current law	$100,000	37%	$37,000	$63,000
2026 0.5% floor only	$95,000	37%	$35,150	$64,850
2026 0.5 floor & 35% cap	$95,000	35%	$33,250	$66,750

Grant and Charity will receive a $37k “benefit” to the charitable contribution in 2025, but that benefit gets reduced next year to $33,250. The hypothetical “cost” to the donors for these changes is $3,750, making it about 6% more expensive for the Goodwill to tithe under the new rules.

There Is A Solution

It’s worth noting that if someone exclusively makes charitable contributions from their IRA (as Qualified Charitable Distributions or QCDs¹), then they entirely bypass these two limitations on the utility of charitable giving. By its nature, a QCD is a direct transfer from an IRA to a qualified charity (which cannot include a Donor Advised Fund), meaning the entire amount of the QCD is excluded from taxable income. It’s not an itemized deduction, so it bypasses both the 0.5% floor and the 35% cap.

For the rest of us, there are a couple of ways to bypass or limit the impact of these two new provisions. The only way to bypass it would be to accelerate several years of charitable giving in 2025 before these new rules take effect in 2026. The way to mitigate it for those with the flexibility to do so would be to “bunch” multiple years of giving in a single year. That wouldn’t do anything to address the 35% cap, mind you. But it would mean that the 0.5% floor is avoided for the years in which you “prepay” your giving.²

¹ In order to be eligible for making QCDs from an IRA, a donor must be at least 70½ years old.
² Under existing tax rules (IRC sec 170), any portion of a charitable gift that can’t be deducted in the current year (including, in theory, the first 0.5 % of AGI under the new floor) can generally be carried

A Vision for You

As mentioned at the start, we do not believe that taxes are a good reason to be charitable. The act of giving is its own reward. By planning well, we can preserve more of the resources we use in service to causes that matter to us. Another mentor often says, “all of the time, talent, and treasures we enjoy aren’t of our own making, and the only way to keep them is to give them freely.” True generosity has always promised that giving isn’t a loss, but a way of keeping what really counts. As we head into the holiday season, let us also say that we are grateful for the opportunity to be of service to our wonderful clients.

We would be delighted to help assess whether accelerating and/or bunching charitable gifts would make sense for your particular circumstances.

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This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your personal advisors. Information obtained from third-party sources are believed to be reliable but not guaranteed.

The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that MBL Advisors is not engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. MBL Advisors does not replace those advisors. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.

MBL Advisors Inc. is independently owned and operated. Investment Advisory Services are offered through MBL Wealth, LLC, a Registered Investment Advisor. For important information related to MBL Wealth, LLC, refer to the Client Relationship Summary (Form CRS) by navigating to http://mbl-advisors.com. Securities are offered through M Holdings Securities, Inc., a registered broker/dealer, member FINRA/SIPC. For important information related to M Holdings Securities, Inc, refer to the Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities. Insurance solutions are offered through MBL Advisors Inc.

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On a yearly basis the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of from an increase in real income.

Category: Financial & Tax Planning

Why are we writing about tax loss harvesting in June – in an up market at record highs no less? Shouldn’t this be published in November or December?

Many investors and financial advisors treat the notion of tax loss harvesting as an event that should be done once a year in December, like the payment of taxes in April (or October) or the administration of a required minimum distribution from an IRA. The routine for many investors is to harvest losses in December. But end-of-year loss harvesting could mean missed opportunities.

For an investor, many factors might contribute to the notion that tax-loss harvesting should be an annual event in December rather than a disciplined process. The emotional aspect of investing (sometimes referred to as “Behavioral Finance”) certainly plays a role too. Most investors have “a deeply ingrained aversion to realizing losses.”¹ Another aspect is the reality that differentiates the taxation of long-term versus short-term gains. That distinction might bleed over into how an investor also thinks about losses. But the good rule of thumb is that whenever possible, an investor should realize gains, if at all, only when they become long-term, but realize losses as soon as practicable. This mantra would help combat the irrational tendency that exists for many investors to hold onto their losers (in hopes they will recover) and sell their winners too early. “An effective taxloss harvesting strategy has the benefit that it can reduce this behavioral bias.”²

All of these are reasons that an investor might delay or defer. But, as Paul Unchalipongse from Columbia Threadneedle writes, “when December rolls around, they’re out of patience and their frame of reference switches: it feels like a good time to claim the tax deduction of a realized loss. The most common reasoning behind December loss harvesting is based on emotion and simple convenience, rather than strategic thinking.”³

For an investment advisor, the short-sightedness of this approach could be both misguided and costly to his or her clients. But it is very telling about the nature of many advisory practices that believe their roles are transactional in nature rather than relational in nature. We believe that tax loss harvesting is a crucial aspect to the long-term success of a taxable portfolio and is at the very fabric of our investment philosophy. A mentor of ours used to 1 say that there are only two predictable forms of alpha, and they are both negative: fees and taxes. While many of our peers may view harvesting tax losses as something they do in the 4th quarter, the notion of tax efficiency is central to our core investment philosophy at MBL Advisors. To be sure, we never allow the proverbial tax tail to wag the investment dog, but investment management without proper consideration of tax implications is akin to living in a vacuum and is a luxury that does not exist outside the world of academia.

The chart below highlights why treating tax-loss harvesting as a December-only event may actually be a detrimental approach for investors. First, because it shouldn’t be an event instead of a process as already discussed. And second, if one does treat it as a once-a-year event, December would be the worst month of the year to harvest losses, from a statistical perspective.

Source: FactSet. Average returns are price returns for the S&P 500 and do not include dividends. The S&P 500 tracks the performance of 500 widely held, large-capitalization U.S. stocks. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.

As the chart above demonstrates, December experiences a positive market return 74% of the time. Coupled with also having the lowest standard of deviation relative to monthly returns (1.32%), December gives investors the fewest loss-harvesting opportunities of any calendar month period of the year on a statistical basis.

Another potential detriment to harvesting losses in December is that it’s easy to pivot from loss harvesting into loss realization. The practical reality is that many American investors may take the cash for Christmas or other year-end cash needs. So rather than rotating losses back into markets, the risk is to just bank the losses. The result of this is that the investor’s allocation changes in a disjointed and unsystematic way and that the investor will not recoup their original value or gain any actual appreciation.

To state the obvious, investors are rooting for their holdings to increase in value over time. That’s the whole point of investing! But when markets are appreciating, rebalancing portfolios to maintain strategic allocation targets can often mean trimming the biggest winners and adding to relative laggards. While we remain diligent around tax implications when performing portfolio rebalancing, realizing some capital gains to maintain appropriate market exposure or to raise cash for portfolio distributions is inherently part of the game. By consistently looking for opportunities to harvest losses throughout the year, the overall tax friction of those practical realities can be partially offset by prudent tax loss harvesting consistently rather than as an event.

Ultimately the purpose of tax-loss harvesting, or what we might consider success in managing taxes along with market risk, means that depending on the circumstances, we may redefine success as reducing the tax cost of public market investing (as opposed to creating a net loss to stockpile for some eventual value realizing event like the sale of a business, real estate or other appreciated illiquid assets). In summary, there are plenty of good reasons to encourage investors to abandon the notion that tax-loss harvesting is an event to be considered once a year in the late fourth quarter.

¹ https://www.wsj.com/articles/why-investors-shouldnt-wait-until-december-to-take-tax-losses-1541387520

² https://www.forbes.com/sites/simonmoore/2018/11/08/why-you-should-tax-loss-harvest-now/#55e913067676

³ https://www.columbiathreadneedleus.com/blog/be-strategic-when-realizing-taxlosses?CID=2019CTI_Email_Insights_Equity_TaxEfficiency_JH9F_BeStrategicWhenRealizingTaxLoss

On a yearly basis the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of from an increase in real income.

The predictability and permanence of any federal transfer tax (estate, gift, GST) laws are inherently low, and this has never been more true than it is in the current political landscape. Fluctuation around exemptions, tax rates, portability, and other related issues has been significant over the last two decades, and we are nearing the precipice of another such wholesale change.

The 2017 Tax Cuts and Jobs Act (“TCJA” and often referred to as the “Trump Tax Cuts”) brought sweeping changes to the tax code, and TCJA specifically changed the transfer tax rules temporarily (through the end of 2025) by effectively doubling the combined gift and estate tax exemption to $10mm (based on 2017 values and adjusted annual for inflation) with a top rate of 40% for gifts and estates exceeding the exemption. In 2024, that exemption is $13.61mm ($27.22mm for married couples). An important feature of the TCJA is its built-in legislative sunset at the end of 2025, meaning that if Congress does not proactively do anything prior to Jan 1, 2026, the exemption will revert to the transfer tax regime in place prior to the passage of TCJA. Indeed all of the so-called Trump Tax Cuts would sunset in 2026.

Given the dysfunction in our Congressional landscape, many practitioners agree that the most reliable assumption is that TCJA’s built-in sunset will run its course. As such, the 2017 tax act would see the 2026 exemption roll back to $5mm indexed for inflation (estimated to be approximately $7.0mm by many). It should be noted that the IRS has issued final regulations confirming that IRS attempts to recapture or clawback any otherwise permissible gifts will not apply. So a gift made prior to 2026 for an amount in excess of the 2026 exemption thresholds will not be subject to clawback or recapture by the IRS.

Questions around what to do in the face of these issues have been increasingly on the lips of tax practitioners and wealthy individuals really since 2018, with the looming election and soaring interest rates being factors that have ratcheted up the stakes. Gifts of $7.0mm (the projected 2026 exemption amount) or less gifts don’t really move the needle, because the gifted amount would come “off the bottom” if/when the exemptions sunset. Some common gift techniques being discussed are SLATs, QPRTs, and other irrevocable trust techniques.

A lot of transfer tax planning is at the nexus of what the math says you CAN do and what your goals and concerns dictate what you SHOULD do. This has never been more true for people who fit a profile that is not uncommon in our firm’s conversations. Specifically, for a married couple with a combined net worth closely approximating the current amount of a married couple’s combined estate tax exemption (but would have an estate in excess of the 2026 exemptions in the event of the TCJA sunset occuring).

Let’s examine the impact for a hypothetical HNW couple, Betty and Barney Rubble. Betty and Barney have a combined taxable estate of $25,000,000 at the beginning of 2024. Their combined wealth is expected to grow annually at 3% (net of inflation, and net of all expenses including lifestyle, debt service, income taxes, etc). If the Rubbles do no planning before they die, the results could be pretty dire for their son, Bam Bam. The chart below illustrates how dramatically the impact will be for the Rubble family if the estate tax exemption sunsets in 2026. Over the next 20 years, the situation worsens. The shaded area between the green line (the Rubble family’s taxable estate) and the blue line (their combined lifetime exemptions) represents the portion of their estate that will be exposed to a 40% estate tax rate.

And to further underscore the cost of delay, the next graph illustrates the cost beginning in 2026. The blue bar is the estate tax liability in dollars and measured by the left axis. The green bar is the % of the Rubble family estate that would be eroded by estate taxes, seen on the right.

Let’s review another family in a similar situation. Fred and Wilma Flintstone have a nearly identical net worth and situation. Like their friends, they also delay making any decisions. Instantly in 2026, they experience remorse at the situation and decide to embark upon a gifting program to provide annual exclusion gifts ($18,000 per year) to their daughter, Pebbles, and her husband and two children. That allows them to make $144k in gifts (2 donors x 4 donees x $18k) per year. The impact over 20 years of that gifting program can be significant. The next two charts highlight something as simple as a gifting program to whittle away at the estate.

Comparing Illustration 1 to 3, you can see that the result is to transfer over $7 million of value over 20 years. The impact is an estate tax savings of almost $2.9 million.

There are a number of things that a HNW family could do now to address these consequences in far more meaningful and dramatic fashion. At the end of the day, there are only three potential destinations for the assets of a deceased person: the people we love, the charities we care about, and the federal government. There is no fourth option.

But there are ways to solve for accentuating the first two and mitigating the third. As one of my partners, Luther Lockwood, is apt to say: “consumption is a great estate tax strategy.” And proper planning with various lifetime gifting strategies before the end of 2025 will be a crucial element to consider. Benjamin Franklin once wrote “An ounce of prevention is worth a pound of cure.” The context for the statement was in warning to Philadelphians of the potential risk of waste due to fire hazards. Similarly, in the context of avoidable estate tax liabilities, an ounce of gift tax planning now can avoid a large estate being consumed by avoidable and wasteful estate taxes. Our paper from 2022 on SLATs is a good starting point!

Summary and Conclusion

The TCJA has been a huge windfall since 2018 for wealthy families’ opportunities for estate and gift tax planning. That window of opportunity is closing unless Congress does something about it. While we are constantly reminded of how we have zero control over what politicians do, we can control how prepared we are for the potential impact of dramatic, negative changes to the federal estate tax regime. The clock is ticking and given that many families are going to be in the same position, procrastination could be very detrimental. Careful planning takes time, and you don’t want to be the one caught without a chair when the music stops.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your personal advisors. Information obtained from third-party sources are believed to be reliable but not guaranteed.

The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that MBL Advisors is not engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. MBL Advisors does not replace those advisors. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.

MBL Advisors Inc. is independently owned and operated.  Investment Advisory Services are offered through MBL Wealth, LLC, a Registered Investment Advisor.  For important information related to MBL Wealth, LLC, refer to the Client Relationship Summary (Form CRS) by navigating to http://mbl-advisors.com. Securities are offered through M Holdings Securities, Inc., a registered broker/dealer, member FINRA/SIPC. For important information related to M Holdings Securities, Inc, refer to the Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities. Insurance solutions are offered through MBL Advisors Inc.

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