It should not take a pandemic to remind us all of our own mortality and the need to plan for our loved ones. However, the lethal spread of the COVID-19 virus highlights why it is so important to have a sound strategy in place to minimize taxes and maximize the value of your estate. We still don’t know when or how this national emergency will end, but there are steps you can take right now to adjust to the financial turmoil and protect the people who matter most.
Whether you believe your estate will be subject to estate tax or not, it’s worthwhile to review and possibly revise your plan based on potential changes such as:
- Stock market losses — Most stocks have dropped sharply since coronavirus started causing widespread harm in the United States. In light of the decreased value and uncertainty ahead, you might want to check to see if your estate plan reflects your current intentions. While nobody likes to watch their stock portfolio drop, the hidden silver lining is that now may be a good time to transfer assets that have reduced in value to loved ones, saving room under the annual $15,000 tax exemption for gifts to each recipient.
- Interest rate drops — With exceptionally low interest rates, legal instruments such as Grantor Retained Annuity Trusts (GRATs) and Intentionally Defective Grantor Trusts (IDGTs) can be especially advantageous when it comes to lowering your taxable estate. In an IDGT, the grantor sells an asset to the trust in exchange for a payment of above market return. Paying above market is less of a burden when the interest rate is near zero. The grantor pays income taxes during their lifetime, but the underlying assets in the trust are allowed to grow, tax free, passing to the person’s estate without such growth impacting the taxable amount.
- Estate tax threshold — Right now, the federal estate tax exemption is at an all-time high of $11.58 million for an individual, double that for a couple. Given the amount of government money expended to deal with the coronavirus pandemic, it’s possible that the exemption could revert to its much lower level when the law is set to sundown at the beginning of 2026.
An attorney who is familiar with complex tax laws and the latest developments in this area can help you guard your estate’s value against present and future threats.
Contact an effective tax lawyer to discuss your situation and options
Hemmer DeFrank Wessels PLLC assists clients with a wide array of taxation issues. For a consultation regarding your specific needs, please call 859-344-1188 or contact the firm online.