Beyond investment discussions, client conversations usually fall into one of three categories: headlines, deadlines, and gossip. Successful advisors are prepared to discuss recent developments of interest to their investors.

In this quarterly article series, we highlight recent headlines, timely deadlines, and relevant gossip to help you stay abreast of what’s new and trending in the wealth management/wealth transfer space.

Headlines: Fed lowers the federal funds rate by 25 bps

On September 17, the Federal Open Market Committee voted to reduce the federal funds rate (FFR) by 25 basis points to a target range of 4% to 4.25%.

What is the federal funds rate?

This is the target interest rate at which commercial banks lend reserve balances to other banks. Reserve balance requirements set the minimum amount of cash the Federal Reserve (Fed) requires a bank to have on hand to cover a fraction of its deposits. Banks with excess reserves lend to other banks that need additional funds to meet their reserve requirements. The rate they charge each other is the federal funds rate.

What effect does raising or lowering the FFR have on the economy?

By adjusting this rate, the Fed influences the cost of borrowing across the broader economy. Raising rates makes borrowing more expensive, which discourages new purchases, slowing the economy and curbing inflation. Lowering rates makes borrowing cheaper, stimulating economic growth.

How does raising or lowering the FFR affect consumer interest rates?

Changes to the FFR indirectly influence other short-term and medium-term interest rates such as those for mortgages, credit cards, and auto loans The FFR also has an impact on the foreign exchange value of the dollar as well as the increase (inflation) or decrease (deflation) in the cost of retail goods.

What wealth transfer techniques work best in a falling interest rate environment?

• Annual exclusion gifts are the simplest form of wealth transfer strategies. In 2025, there is no reporting required and no tax on gifts less than $19,000 per recipient. These gifts transfer the value of the gift as well as any income and appreciation earned by the gifted asset to the recipient.
• Intrafamily loans are another straightforward wealth transfer strategy. An intrafamily loan is made to an individual borrower and structured as an interest-only loan, with principal due as a balloon payment – a one-time payment that covers the remaining balance following an initial series of low monthly payments – at the end of the loan term. Assuming the assets purchased by the borrower with the loan proceeds appreciate at a rate higher than the current interest rate, the excess passes to the borrower tax-free.
• Grantor Retained Annuity Trusts are a government-sanctioned way of transferring the growth of an asset. The lower the interest rate, the greater the potential to maximize the amount transferred.
• Sale to Intentionally Defective Grantor trust is a more complex technique for the transfer of growth that may be particularly effective for larger transfers. Lower interest rates increase the probability of success in these transactions.
• A Charitable Lead Annuity Trust combines private and charitable gifting goals. Lower interest rates increase the potential to maximize the benefit to a private beneficiary.

 

Deadlines

December 31, 2025: RMDs from retirement accounts, deductible charitable contributions for tax year 2025, and 2025 annual exclusion gifts.

Estimated tax payments: For individuals required to make quarterly estimated income tax payments for tax year 2025, the fourth installment is due January 15, 2026. If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that’s not a Saturday, Sunday, or legal holiday.

Gossip

Passings

July: Jimmy Swaggart, Michael Madsen, David Gergen, Connie Francis, Malcolm-Jamal Warner, Ozzy Osbourne, Hulk Hogan

August: Loni Anderson, Terence Stamp,

September: Rick Davies, Charlie Kirk, Robert Redford, Claudia Cardinale

Interesting cases and rulings: Besaw v. Commissioner

On April 15, 2020, John Henry Besaw (“Besaw”) and his spouse filed their 2019 joint federal income tax return. On Schedule A, Itemized Deductions, Besaw claimed a deduction of $6,760 for noncash charitable contributions. The filing included Form 8283, Noncash Charitable Contributions, and continuation sheets, identified each charitable organization by name and address, and provided short descriptions of the donations but did not provide dates and the values of the donations.

On August 10, 2022, the IRS issued a Notice of Deficiency disallowing the $6,760 noncash charitable contributions deduction. In response, Besaw filed a petition with the United States Tax Court.

The court, despite acknowledging that it believed Besaw had made the charitable donations, disallowed the entire deduction due to incomplete charity receipts. This ruling reinforces that even undisputed charitable giving provides zero tax benefit without proper documentation.

Advisor/Client takeaway

According to research by Nonprofit Source, nearly one-third of annual giving occurs in December, with 10% of all giving coming during the last three days of the year. The holiday season certainly plays a role in the uptick of donations, as people are often more charitable. But some are also donating to beat the year-end crunch, as all philanthropic gifts must be made by December 31 to receive a tax deduction.

Clearly, size does not matter when it comes to documenting charitable donations, as the gift claimed in the Besaw case was relatively small, yet the Internal Revenue Service chose to audit the return and disallow the deduction anyway. Philanthropic clients should be prepared to meet all documentation requirements, regardless of the size of their donations.

If you have questions on any of the information covered here, or other wealth planning topics, feel free to reach out our Wealth Strategist Group or your Janus Henderson representative.

IMPORTANT INFORMATION

The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a financial professional. Federal and state laws and regulations are complex and subject to change.  Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.