Saturday, May 23, 2020
The current COVID-19 crisis and has created significant wealth transfer opportunities for those high net worth families who are subject to the Federal estate and gift tax. The Federal exemption, which is the amount of assets that every individual can transfer during life or death without paying an estate or gift tax is $11.58 million for 2020. Given the current low interest rates, there are a variety of wealth transfer opportunities available to those who want to pass assets down to future generations with little to no tax cost.
Grantor Retained Annuity Trust (GRAT)
One of the wealth transfer opportunities is the GRAT, which is an irrevocable trust to which an individual transfers assets one exchange for an annuity payable over a specified term. When the term expires, the remaining assets of the GRAT pass onto the grantor's beneficiaries or trusts for their benefit. The GRAT is an effective way to take advantage of the low rates that have resulted from these uncertain times.
Sales to Intentionally Defective Grantor Trust (IDGT)
For owners of closely held businesses or real estate interests, sales to IDGT for the benefit of family members is another great opportunity. The goal of this transaction id to transfer the future income and appreciation of the asset to the next generation at a reduced gift tax cost.
Loans to Family Members
Another simple and effective way to take advantage of the times in a ways that benefits and assists the next generation is through intra-family loans. Loans to family members must bear interest at a rate at least equal to the AFR; but given the historically low rates, borrowing costs are reduced.
In sum, these wealth transfer opportunities are not mutually exclusive and can be considered in tandem in order to achieve a significant amount of wealth transfer.
See Wealth Transfer Planning Opportunities in the Current Environment, csglaw.com, May 20, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.