Positive Planning Strategies In A Challenging Health and Economic Market

Positive Planning Strategies in a Challenging Health and Economic Market

As we continue to move forward during these difficult times, it is important to note that individuals still have ways in which their wealth can benefit.

We explore various ways in which your assets can benefit in this type of climate:

Gift Depreciated Assets

Now may be the best time to gift assets that have declined in value due to challenging market conditions. While asset values are low, gifting more assets to maximize your federal gift tax exemption would only be more beneficial for the individual.

Maximize the High Federal Exemption

The 2020 tax code provides that every penny in excess of $11.58 million dollars per individual is taxed upon death at rates that rapidly escalate to 40%. However, now is the time to take advantage of this high federal exemption amount as the law sunsets and it is set to revert back to the $5 million level, (adjusted for inflation), on January 1, 2026. The earlier that a gift is made, the longer it can potentially grow outside of your estate.

  • Another caveat to consider is the possibility of the exemption reverting to a previous level, or lower, depending on the outcome of the Presidential election. In the event of a change of political power, it’s highly possible that Congress will hasten the drop in the estate tax exemption amount and may even reduce it further, and even now, there is currently legislation pending in the House to lower the exemption amount to $3.5 million and introduce a progressive rate structure.

Gifts to a Trust

When considering making large gifts, another option includes using a trust rather than an outright gift. Gifts are made to a family gift trust to obtain benefits not available if the property is given outright to a person.

Grantor Retained Annuity Trust (GRAT)

A GRAT allows you to transfer the growth on assets to future generations at a reduced gift and estate tax cost. With this irrevocable trust, you transfer assets expected to appreciate and retain an annuity stream for a fixed term. At the end of the period, the remaining assets pass to family members outright or in further trust.

Move Assets to Mitigate State Income Taxes

The use of personal trusts have become most commonly used as estate and gift tax planning tools, and they have also increased importance as vehicles for minimizing a family’s state income tax liability.

The above planning strategies are just a few options that individuals may find attractive and consider in this kind of climate. It is important to speak with your advisor before making any financial decisions.

We work in coordination with your CPA’s, bankers and attorneys to create a plan that minimizes tax exposure and maximizes your legacy that will make sure that you and your heirs receive everything that you have worked so hard to provide for them. Let us help guide you during these challenging times and together we can implement a plan that works best for you and your family.





Image by: J. Krechowicz