Sunday, May 17, 2020
Due to the coronavirus pandemic, rich Americans are taking advantage of the opportunity to transfer money to their children and grandchildren tax free. The diving interest rates and volatile equity markets have fostered a once-in-a-lifetime opportunity for wealthy Americans that is keeping their wealth advisors busy.
The key interest rates set by the IRS for estate-planning purposes are at an all time low. The simplest way for wealthy Americans to take advantage of the low rates is to loan cash or other assets to family members. Heirs can borrow millions of dollars, then invest the money and profit from any upside. Also, beneficiaries can lock in these low rates for years and possibly even decades.
David Stein, a partner on the private client and tax team at Withersworldwide, said many people are taking out longer-term loans and choosing the preference to pay a little but more in interest to guarantee a historically low rate for decades. The falling rates enhance sophisticated estate-planning strategies, especially those that rely on loans to trusts. The advantage to taking advantage of these strategies is that they do not eat into any of the U.S.'s estate and gift tax exemption.
An example of one of these sophisticated strategies is the grantor retained annuity trust (GRAT), which allows beneficiaries to profit from any future investment gains with no risk of losing money so long as the returns are not higher than the IRS-required interest rate.
It has never been easier to transfer assets to heirs without using up as much of the tax-exemption. Now is a better time than ever to give!
See Ben Steverman, Rich In U.S. Grab Historic Chance to Pass on Wealth Tax-Free, Bloomberg, May 1, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.