Financial Insights To Guide Your Decision Making

Financial Insights To Guide Your Decision Making.

Estate planning is always an inexact science. Political sentiment changes, budget priorities shift, and fiscal realities set in. Thus, estate planning professionals urge individuals to take advantage of, but most importantly, take control of these conditions to ensure that the client is structured to move forward efficiently.

The current market has caused the value of businesses, securities and real estate to dramatically decline. However, those with long-term assets that are expected to appreciate beyond their current valuations should know that the present climate does open windows of opportunity. The current asset valuation dip may represent an opportunity to restructure, gift, or transfer assets to gain more significant long-term tax efficiencies for the client and their family.

The following situations below may be of benefit for the client and their family during these unprecedented times:

  1. Transfer of Assets to a Family Members: Now may be the time to transfer wealth to the next generation with reduced gift tax exposure. Consider the upcoming election as well: due to today’s political climate, it’s highly possible that Congress will hasten the drop in the estate tax exemption amount. The current estate tax and gift tax exemption is $11.58 million per individual, or $23.16 million per married couple. This is why timing is of the essence.
  2. Transfer of Assets to a Family Trust: Low-asset values in conjunction with the increased Generation Skipping Tax (GST) exemption under TCJA gives donors the opportunity to shield the future appreciation of transferred assets from gift and GST taxes.
  3. Alternate Valuation Date: Executors administering estate should consider whether selecting the alternate valuation date to value the assets in the estate will reduce the overall value of the estate. A reduced estate value could also mean a larger Deceased Spouse’s Unused Exemption (DSUE) amount to transfer to the surviving spouse.
  4. Exercise of Substitution Powers: Sometimes grantors of trusts may swap cash that would be included in their estate for appreciated assets in trust, so those assets receive a stepped-up basis at the grantors passing. This could be the opportune time for the grantor to consider reacquiring appreciated assets using less cash.
  5. Funding Zero-out Grantor Retained Annuity Trusts (GRATs)– GRATs are still a viable strategy as the Internal Revenue Code (IRC) §7520 rate for April 2020 is 1.2% (lowest rate since 2013); if the market rebounds during the GRAT term, significant appreciation can be transferred for a very small taxable gift. Even if the GRAT fails, the transfer tax cost would be near zero. Sales to Intentionally Defective Irrevocable Trust (IDITs)should also still be considered. Two-year GRATs are particularly efficient for gifts with low valuations.
  6. Consider “Upstream Gifting”– Transferring depressed assets to a parent who will not have a taxable estate is a great way to move appreciation out of a donor’s estate and get a fresh basis on those assets included in the estate of their parents. The deceased parent of the donor can then use their available GST exemption at death to move the assets to the donor’s children.

Most individuals are not effectively using their gift tax exemption, which will significantly reduce the size of their estate. Now more than ever, timing is of the essence for individuals to focus on implementing the estate plan that is best for themselves and their family. To maintain a desired standard of living both for the clients and their heirs, it is of utmost importance to not only create an estate plan to take advantage of the big tax exemption now, but also for clients to take control of their assets and execute some of the above strategies or other tax-planning opportunities to ensure full financial and estate planning control.

We can guide your client to protect their legacy while simultaneously growing their financial assets to continue building generational growth. Take control of your legacy today.

Image by: R. Pirola