Thursday, June 25, 2020
However, the gloomy climate has opened up some rare opportunities in another area of wealth planning: wealth transfer. The low interest rates and reduced asset prices combined with the ultrahigh estate tax exemption that was enacted under the Tax Cuts and Jobs Act in 2018 create a perfect storm for maximizing the amount you can pass to beneficiaries while avoiding or minimizing a tax hit.
“If you’ve been wanting to transfer a bunch of securities or interest in your company or real estate, well, now’s the time to do it,” says Bryan Kirk, director of financial and estate planning at Fiduciary Trust International.
For those worried about estate tax, you can push more assets out of your estate under the exemption when values are low, Kirk says, adding that large assets are typically transferred to a generic irrevocable trust to ensure they’re managed properly and protected from creditors or spendthrift heirs.
Further, even families who aren’t concerned with the estate tax can benefit from low-value asset transfers. One way to do this is a grantor retained annuity trust (GRAT), which returns the value of the assets to you when the trust expires but leaves appreciation to your beneficiaries.You transfer assets to a GRAT and receive an annuity payment over the trust’s term that’s equal to the amount you put in, plus appreciation up to an IRS interest rate. At the end of the trust’s term, any appreciation over the IRS rate—called the 7520 rate—goes to heirs.
See Karen Hube, Opportunities Abound for Wealth Transfer, Barron's, June 18, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.