Estate Planning Opportunities Presented by the Coronavirus Pandemic

It would be an understatement to say that our lives have changed as the result of the coronavirus pandemic and its impact on the economy. While many people are facing hardships as they plan for what lies ahead, these difficult times have presented some powerful estate planning strategies. This article reviews some unique opportunities presented by the pandemic that can let you make the most of estate and gift taxes. 

Grantor Retained Annuity Trusts

These trusts are an ideal way to transfer assets that will appreciate in the future to children without facing transfer taxes. As part of these trusts, an individual transfers interests or securities to an irrevocable trust. Following this transfer, a person still has the right to receive trust annual annuity payments. Because the trust creator retains the full value of the transferred property, a gift is often considered to be made that would be subject to a gift tax. 

For these trusts to transfer appreciation in the assets to a person’s children or beneficiaries, the rate of return must be greater than 7250 times the rate as of the date that the trust is created. The greater the return, the more appreciation that can be transferred. Given currently low rates as well as the likelihood that the economy will eventually recover, this is an ideal time to create a grantor retained annuity trust.

Charitable Lead Annuity Trusts

Similar to grantor retained annuity trusts, the trusts involve the transfer of assets to a charity instead of an individual beneficiary. Due to low rates and the great probability for economic recovery over time, now is an opportune time to create one of these trusts.

Gifts

Despite the country’s current situation, some people are ready to transfer assets to their loved ones now rather than at their time of these. These people can make the most of gift tax exemptions as well as generation-skipping transfer tax exemptions to place assets in an irrevocable trust for loved ones. By transferring assets now, any post-transfer appreciation will not be subject to taxation. 

Due to the US economy’s current low-point and its likelihood of returning to more “normal” times, appreciation of assets is likely. Another reason to consider making gifts now is that both estate and gift tax exemptions are likely to decline substantially in the next few years, which means that more assets will be subject to taxation. 

Intra-Family Loans

For people who do not want to use estate or gift tax exemptions, low-interest family loans might be an attractive option. These low-interest loans are similar to grantor retained annuity trusts because the lender receives payment back to the loan’s principal. 

To eliminate the risk of making a disguised “gift” and facing imputed interest income, loan interest should be at least set at the applicable federal rate, which for May 2020 for less than nine years is .58%. This is an attractive and comparatively low-interest rate, while this percentage is likely to increase as the economy recovers.

Speak with an Experienced Estate Planning Lawyer

The strategies reviewed in this article are just some of the tactics to strengthen existing estate plans. If you need help deciding what estate planning works best for you, contact a knowledgeable estate planning attorney like Jim A Lyon today.