Overview
For additional guidance, please refer to Steptoe's COVID-19 Resource Center.
You may notice that you are hearing from us more often than usual. In the last weeks we have been experiencing oil wars, a pandemic virus, and election uncertainty, all of which have contributed to a very uncertain financial environment and to a level of financial and personal concern of historic proportion. First and foremost, we wish you and your families safety and good health and hope that worldwide events do not keep you separated from your loved ones. As family advisors, we understand that being there and taking care of your loved ones is of utmost importance. While many doors are prudently closing to stem the spread of the COVID-19 virus, we are here to assist you with all of your planning and other legal needs.
While we know that estate planning may not be your primary focus right now, we want to remind you that in these turbulent times, it is important to review and assess your current estate plan to ensure that your overall plan still works with your current family structure and net worth and to take note of the planning opportunities that the current down market and lower interest rate environment present.
For those who have an estate plan in place, more sophisticated estate planning options may make your current planning more tax efficient. Lower interest rates and asset valuations offer opportunities to maximize the use of the current exemption amount.
- Consider adding lifetime gifts to use up your current exemption amount. Gifts made during your lifetime remove both the value of the gifted property as well as any appreciation on that property from your taxable estate, thus minimizing what may be taxed at your death. Under current law the exemption for estate, gift, and generation skipping transfer tax (GST) of $11,580,000 reverts back to $5 million (indexed for inflation) for decedents dying and gifts made after December 31, 2025. However, it is possible that you need to "use it or lose it" this year because of the uncertainty of the changes the election may bring. Consider making additional gifts now to take advantage of the limited window of time for increased gift tax exemption planning.
- Consider ways to leverage your exemption, for example, by making gifts of discounted minority business interests to GST exempt dynasty trusts.
- Minimize the amount of exemption you use by funding grantor retained annuity trusts (GRATs) or making sales to grantor trusts. Lower interest rates make these techniques more attractive as the hurdle growth rate required to be surpassed to effectively transfer appreciation out of your estate is much lower.
- Refinance intra-family loans to take advantage of lower interest rates.
- Use swap powers in grantor trusts to trade low basis assets owned by irrevocable trusts with high basis assets owned individually. By doing this you bring assets back into your estate which receive a stepped-up basis on your death. This will eliminate capital gains tax on the sale of such assets after your death.
- Also use swap powers to trade assets whose values are expected to fall for cash or other non-depreciating assets. This will protect and freeze the value of assets excluded from your estate.
Regardless of whether you take advantage of these more sophisticated planning opportunities, it is important that you have a basic estate plan in place. If you do not have a will, a health care proxy, and a power of attorney, now is the time to get these documents in place and to make sure that your family and trusted advisors know that they exist and where they are located. Children 18 years and older should have a health care proxy and power of attorney as well. We remind you to review existing advance directives and decide whether they need to be updated. Are your beneficiary designations up to date? Are your appointed agents under your health care proxy and power of attorney available to act? Do your agents understand your medical wishes and/or your financial picture? If you have a family business, do you have a plan for succession of the business in place and have you discussed that plan with your heirs? Any existing business succession plans should be reviewed and updated as necessary.
Now is the time to act. Each incremental step you take now can have a monumental impact on your family’s peace of mind and on your overall ability to transfer wealth efficiently.
