Depressed Market Values and Low Interest Rates Present Estate and Gift Tax Planning Opportunities

Paula Ellenberg, CPA, CVA, MST (May, 2020)

No one would argue that this time of crisis and uncertainty has led to a roller coaster of legislation.  Shifts in the stock market have caused major portfolio decline and interest rates are at a low point.  Low asset values and low interest rates influence how wealth transfers are valued for tax reporting purposes. For those subject to federal and/or state estate tax, current economic and market conditions provide an estate planning opportunity:  less of your lifetime exemption can be used to gift more.  

We all hope that asset values are temporarily depressed; however, at this time more value can be transferred out of the estate increasing the likelihood that the appreciation will be passed on to beneficiaries.  The following are some ways to take advantage of the low interest rate environment and portfolio decline. 

  • Make outright gifts or gifts in trust while your portfolio values are depressed.
  • Make or refinance loans, including intra-family loans.  Interest rates are low and loans and sales of assets in exchange for notes are an attractive estate-planning technique.
  • Make transactions with grantor trusts: move a depressed asset into a trust removing the appreciation from your estate.

Succession Planning

  • Small business stock values may be down due to the current economic environment. 
  • Discounting still applies in the valuation of partnerships or other business entities.

Create a Charitable Gift Plan

  • Charitable planning is enhanced in a low-interest rate environment.  The lower the rate, the larger the potential tax-free transfer.  What this means is that you would use less of your estate and gift tax exemption when you set up these trusts.

Should you be proactive now?  There are numerous ways that Dermody, Burke & Brown, CPAs, LLC can help you work through your current estate planning strategy. 

 

The information reflected in this article was current at the time of publication.  This article will not be modified or updated for any subsequent tax law changes, if any.

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