To say that we are living in interesting times would be a gross understatement. In the span of just a few weeks we have gone from record high stock market indices and historically low unemployment, to oil wars, pandemic virus, historic loss of stock market capitalization, skyrocketing unemployment, and a looming concern of an economic recession or worse. The economic whiplash we are all experiencing has contributed to a very uncertain financial environment and a feeling of financial and personal instability not experienced since shortly after the events of September 11, 2001.
As advisors to many families, we know that being there and taking care of your loved ones is of primary importance during this time. While we know that estate planning may not be your primary focus right now, we want to remind you that in these uncertain and trying times, it is important to review and assess your current estate plan to ensure that your overall plan still accomplishes your family goals and objectives. Likewise, it is equally important to be sure that your beneficiary designations for life insurance, retirement plans, and annuities are also up to date and consistent with your wishes. As you are looking at your retirement plan beneficiary designations, please be aware that the new federal SECURE Act became effective on January 1, 2020, and this new law brings about some substantial changes that may cause you to want to make changes to your estate planning documents, especially if you have significant assets in an IRA or 401(k) account. Please give us a call if you wish to discuss this in more detail.
For our clients who are confident their core estate plan meets their current needs, more sophisticated planning options may make your current planning more tax efficient. In times such as these, there are actually several estate planning opportunities that are worth considering, including, but not limited to, the following:
1. Consider making lifetime gifts to use up your current estate/gift exemption amount ($11,580,000 for individuals, and $23,160,000 if you are married). Gifts made during your lifetime remove both the value of the gifted property as well as any appreciation of that property from your taxable estate, thus minimizing what may be taxed at your passing. The aforementioned exemption amounts are scheduled to revert back to only $5,490,000 per person, or $10,980,000 for married couples, for all gifts made after December 31, 2025. However, since we are in an election year, it is possible that you need to “use it or lose it” this year, because of the uncertainty of the changes the upcoming election may bring. With depressed stock values, it is an ideal time to make gifts of low-value stock that has high appreciation potential, since future growth will be outside of your estate.
2. 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.
3. If you are hesitant to completely give away property in the current economic environment, consider making a gift to a Spousal Lifetime Access Trust (SLATs). Gifts to a SLAT are made for the benefit of your spouse and your children, and effectively remove the gifted assets out of your taxable estate. That said, your spouse is a beneficiary of the SLAT and thereby able to receive distributions from the SLAT during his or her lifetime (and you are able to indirectly benefit), as are your children. Of course, if you and your spouse are divorced you would no longer have access to the SLATs assets through your spouse, but you can ensure that your divorced spouse no longer has access either.
4. Consider using swap powers in grantor trusts to trade low-basis assets owned by an irrevocable trust with high basis assets owned individually. By doing this you bring assets back into your estate which will receive a stepped-up basis upon your death, which will in turn reduce capital gains tax on the sale of such assets after your death.
Please know that while our firm has temporarily closed its physical locations in the coming days/weeks in order to do our small part to stem the spread of COVID-19, we want you to know that we will remain ready to assist you with all of your family and business planning needs as we work remotely from our homes.