The coronavirus is causing major economic impacts as can be seen with the declining stock market. This adverse impact and the uncertain prospects for the future are a source of concern and worry for us all. However, this set of unfortunate circumstances has created a unique opportunity for the very wealthy to minimize or avoid estate taxes.
There are three factors that play roles in this opportunity:
- The current reduction in investment account values people are seeing in today’s bear market. While no one wants to see their investment accounts plummet, the hopefully temporary reductions in investment values means we can transfer assets out of your estate while using less of your federal gift tax exclusion.
- A hefty federal gift tax exclusion whose days may be numbered. The current lifetime estate and gift exemption is $11.58 million. Under current law, that exemption drops to under $6 million on Jan. 1, 2026. If there is a change in the administration due to the election in November, the exemption would almost certainly be reduced before then. In 2016, many commentators noted the Obama administration’s desire to reduce the exemption to $3.5 million.
- Interest rates at historic lows. The applicable federal rate (“AFR”) for short-term loans (up to three years) is only 0.91%, for midterm loans (up to nine years) is only 0.99% and for long-term loans is only 1.43%. A low interest environment rate makes certain estate play techniques more effective. Grantor Retained Annuity Trusts (GRATs) and Intentionally Defective Grantor Trusts (IDGTs) may be great tools for wealthy Americans seeking to reduce their taxable estates. These are just two of the many tools available.
The time to act could be sooner rather than later, because the ability to use these tools to minimize estate tax may be lost if the political climate changes with the elections in November. GRATs and IDGT mentioned above, and fractional interest discounts for estate tax reductions are just a few of the techniques to minimize estate tax that could be lost.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You should contact your estate attorney, your certified public account, and your financial adviser to determine the steps that are consistent with your family’s long-term goals. While this planning can be complex, it can be completed even if you are unable to leave your home due to the coronavirus quarantine or stay at home orders.
This may very well be the best, last chance opportunity to minimize or avoid estate tax.
-
Thanksgiving 2024: How Grocery Taxes Impact Your Holiday Food BudgetFood Prices Some families are navigating high food prices influencing what’s on the table this Thanksgiving.
-
9 Year-End Money Moves to Make NowBoost your retirement savings, lower your taxes and get the most out of your health insurance.
-
The Three Financial Questions Every Retiree Asks (or Should)Unless you can answer these three important questions, you may be at risk for the biggest retirement worry there is: Running out of money.
-
Six Missteps to Avoid as You Transition to RetirementDon't lose sight of your finances when you finally reach retirement. These six classic missteps can chip away at the nest egg you’ve worked so hard to build.
-
Why Does One Claim Jack Up My Insurance After Years of No Claims?Even loyal customers can be hit with an insurance premium hike after a claim, despite going many years without any claims. There's a reason for that.
-
To Future-Proof Retirement Security, We Need Better StrategiesWith retirees living longer and the inequalities that affect women and people of color, the retirement system needs some optimization. Here’s what would help.
-
Here's Why We All Win When Charitable Dollars Go to WomenGiving to charities for women and girls not only has a lasting impact on their lives — it also benefits society as a whole. Here’s how to start investing.
-
For a More Secure Retirement, Build in Some 'Safe Money'To solidify your retirement plan, write it down, reduce your market risk and allocate more safe money into your plan for income.
-
Five Steps to a Mindfully Fearless CareerIf, like many women, you're struggling with imposter syndrome, try developing an athlete's winning mindset. It's as simple as facing one small fear every day.
-
Six Ways to Optimize Your Charitable Giving Before Year-EndAs 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
