Mike Miranda:
We're recording this on Monday, July 14th, and I'm excited to be joined today by Pratik Patel, U.S. Head of Planning for BMO Wealth, who brings a deep perspective on how clients can align their financial lives with their broader goals.
Welcome to Beyond the Portfolio. I'm Mike Miranda, Head of Investments for BMO Private Wealth North America. In each episode, we'll bring you expert analysis from BMO's top strategists and economists to help you navigate market conditions and stay informed.
Over the past few episodes, we've focused on the big picture. Economic trends, market performance, and how global events are shaping the investment landscape at the halfway point of the year. We've explored inflation dynamics, central bank policy, and the implication of rising tariffs and geopolitical tension. With the recent passage of the One Big Beautiful Bill, today's episode marks a timely pivot from the macro to the personal. This sweeping piece of financial legislation has major implications for tax strategy, entitlement reform, and long-term financial planning. It's a perfect moment to step back and ask, "How should clients be thinking about their plans in this new environment?" Pratik and I will unpack what this means in practical terms and how thoughtful, proactive planning can help clients stay grounded and forward-looking even amid change. So let's dive in. Pratik, let's start with the big picture. What is the One Big Beautiful Bill Act and why is it important for wealth managers and clients?
Pratik Patel:
Yeah, thanks Mike, and thanks for having me. The One Big Beautiful Bill Act is a comprehensive tax and spending bill signed into law on the 4th of July. It builds on the 2017 Tax Cut and Jobs Act by making many of those provisions permanent, like lower individual tax rates, and the 20% pass-through reduction on qualified business income. But it also introduces a number of new elements like expanded SALT deductions, changes to the estate tax exemptions, and new savings vehicles. For wealth managers, it reshapes the landscape for tax planning, estate strategies, and charitable giving. It's not just about tax cuts, it's about how we help clients align their financial plans within this new set of rules.
Mike Miranda:
All right, thanks, Pratik. You mentioned the SALT deduction cap increase. So what changed there and who benefits?
Pratik Patel:
Yeah. The SALT deduction is the deduction you get on your federal taxes for taxes paid locally. Income taxes, property taxes, things like that. It's been in the news a lot since 2017, because that is when congress, during President Trump's first term as president, passed the Tax Cut and Jobs Act in which that deduction went from unlimited to $10,000. In this bill, the SALT deduction cap was raised from $10,000 to $40,000 for households earning under $500,000. That's a big shift, especially for clients in high-tech states like New York, California or Illinois. But there's a phase out. Once income exceeds $500,000, the benefit starts to taper off. It's actually by 30% for every dollar of income above $500,000. The cap is also indexed to rise 1% annually through 2029. So it falls a little bit short of inflation, but it will grow each year. But it's scheduled to revert back to $10,000 in 2030, unless it's extended by Congress. So for clients in that upper middle income range, this opens up new opportunities to itemize and reduce taxable income, but for higher earners, it's still limited, although it's worth modeling out for broader tax strategies.
Mike Miranda:
That's helpful, Pratik. Now, estate planning I know is always a key area for our clients to be focused on. What's changed under this bill?
Pratik Patel:
First off, the increased estate tax exemption amount passed under the Tax Cut and Jobs Act in 2017 was due to sunset at the end of this year, at which point it would effectively have been cut in half. In this bill, the exemption has been increased to $15 million per individual, or $30 million for married couples starting in 2026, meaning that sunset is no longer an issue. That's up from about $13.99 million in 2025, and as always, it's indexed for inflation moving forward. For us, this creates a significant planning window. Clients who were preparing for the sunset at the 2017 exemption level now have more room to transfer wealth tax efficiently. It's a great time to revisit gifting strategies, GRATs, SLATs, trust structures, especially for clients with closely held businesses or large real estate portfolios. The top estate tax rate remains at 40%, so the stakes are still high for those above the threshold. And as with most things tax related, a new president in Congress could always change the rules. The opportunity here is for those who take advantage of this increased exemption amount while it's available.
Mike Miranda:
That's very helpful, Pratik. I know there was also some changes on the charitable giving side, so what should our clients know as it relates to charitable giving?
Pratik Patel:
Yeah, there are a few key updates. First, there's a universal charitable deduction up to $1,000 for individuals and $2,000 for joint filers. Even if you don't itemize, that's a really nice incentive for broader participation in charitable giving. For itemizers, there's now a 0.5% AGI floor, meaning you have to give at least that much before the deduction starts to count. And for top earners, those in the 37% tax bracket, the value of the deduction is capped at 35%. Bottom line, the new rules are a bit more complex, but still favorable for strategic giving, especially when paired with donor-advised funds or appreciated asset donations. You just have to be a little bit more strategic with how you structure the giving.
Mike Miranda:
All right, well, that's a lot of great insights for us, Pratik. Maybe some final thoughts then from your perspective, what should our clients and their financial partners be doing right now in response to this bill?
Pratik Patel:
Yeah, from my perspective, this is a great time to be proactive. Review your estate plans, especially for clients who may now fall under the new exemption thresholds, and revisit charitable strategies. There's more nuance now and timing really does matter for clients in high-tax states. It might be worth modeling out SALT deduction changes to see if itemizing makes sense again. And keep an eye on the fiscal side. This bill adds nearly $4 trillion to the deficit over 10 years, which could influence interest rates, inflation, and further tax reform. The key is to stay flexible and help clients adapt their plans to take full advantage of the new rules.
Mike Miranda:
Thanks, Pratik. Those are some really great insights. As we've discussed today, planning certainly doesn't happen in a vacuum. It's shaped by legislation, market cycles, tax regimes, and most importantly by each client's individual goals. The One Big Beautiful Bill is just the latest reminder that policy can be powerful, as powerful a force as portfolio performance when it comes to long-term outcomes. What stands out in this moment is the importance of adaptability, of building plans that are durable but flexible, rooted in values, but responsive to change. Pratik's insights underscore how critical it is to stay engaged, ask the right questions, and revisit your strategy regularly as the world around you evolves. Clearly these planning issues are deeply personal, so as you have questions, please feel free to reach out to your BMO representative. Thanks for joining us on this episode of Beyond the Portfolio. We'll continue to bring you conversations that connect the dots between markets, policy, and the deeply personal decisions that define financial success.
Thank you for listening to Beyond the Portfolio. You could follow us on Apple Podcasts, Spotify, or your favorite podcast app. Until next time, I'm Mike Miranda.
Speaker 3:
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