Strategic Estate Planning: The Perfect Storm

Susan P. Rounds, JD, CPA, LL.M. (taxation), AEP®, TEP

The Perfect Time for Estate Planning

A confluence of more time on our hands, an urgent reminder of the important things in life, depressed asset levels and a reduction in interest rates have created the perfect storm for estate planning.  To ease the process of executing necessary legal documents, more and more states are allowing virtual notarization. Twenty-three states have implemented this and you can see the list at: www.nationalnotary.org.

Depressed Valuations:  Transfer the Potential Upside
Low valuations provide a tremendous opportunity to transfer assets out and “freeze” your estate.  There can be minimal exposure to estate, gift and generation-skipping transfer tax due to the low value of the assets and any subsequent increase in value can occur outside your estate.

Leveraging Low Interest Rates
Interest rates published monthly by the IRS set the “hurdle” for Trusts such as Grantor Retained Annuity Trusts (“GRATs”) and Intentionally Defective Grantor Trusts (“IDGTs”).  For May those rates are well under 1%! The benefit of this is that earnings on assets transferred to these trusts in excess of the hurdle rate may create a tax-free transfer of wealth to the Trust beneficiaries.

Increased Exemption:  Use It or Lose It
The increased Estate Tax Exemption is set to expire in 2025 and revert to a $5MM base per person, from the current inflation adjusted $11.58MM per person/$23.16MM per married couple.  Depending on 2020 election results, we may see an end to this benefit even sooner.   The IRS recently provided that you won’t be penalized for using the higher Exemption now even if it is later reduced.  Specially drafted Trusts such as a Spousal Lifetime Access Trust (“SLAT”) may provide a solution, allowing you to take advantage of the Exemption, while providing a potential safety net because the beneficiary-spouse may still access those assets if needed.

Documenting Medical Treatment Preferences and Appointing Trusted Agents

Advanced Medical Directives, such as a Living Will, outline your preferences with respect to medical treatments and interventions when you can’t speak for yourself.  You can also appoint a health-care proxy or agent to make medical decisions if you are incapable of doing so.  For business and personal financial matters, a Durable Power of Attorney is used to appoint one or more trusted persons to act as your agent if you become mentally incapacitated.

Income Tax Day Has Been Moved to July 15th

For individuals and businesses with federal income tax returns or payments originally due on April 15th, the deadline for filing and payment has been postponed until July 15th. There is no limit on the amount of federal income tax that may be deferred from April 15th to July 15th.  State filing and payment deadlines may vary.

Next Steps:  Document Review and Discovery

Clients need us to help them navigate these uncertain times and to identify strategic estate planning solutions.  Let them know you can start the process by reviewing their current documents and/or setting up a call to discuss their estate planning goals and objectives.

Happy Reading!

 “Knowledge is weightless, a treasure you can carry easily” – Anonymous

Email me at editor@naepcjournal.org with your comments and suggestions.

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