Estate Planning

There’s No Better Time Than Now To Review Estate Plans & Wealth Transfer Opportunities

There are several significant factors indicating that this is a good time to revisit your estate plan. The impact of the novel coronavirus (COVID-19) and the resulting economic uncertainty, as well as the uncertainty of our future tax environment, has left many individuals wondering how to put their best foot forward.  While it is difficult to find silver linings in the disruptive pandemic, it has at least created wealth transfer opportunities for those high-net-worth families who are, or could become, subject to Federal, and possibly state, estate, gift and inheritance taxes.

Here are some important reasons why you should revisit your estate plan before year-end:

  • The federal estate tax exemption, which is the amount of assets every individual can transfer during life or at death without the payment of estate or gift tax, is $11,580,000 for 2020. The combination of this high federal exemption, market volatility and historically low interest rates creates an excellent opportunity for lifetime wealth transfers such as gifts and sales to dynasty trusts and/or grantor retained annuity trusts. By making a transfer at this time, a significant amount of the growth and appreciation of the assets can be transferred for the benefit of beneficiaries, free of any gift or future estate tax. The federal exemption is scheduled to decrease to approximately $6.5 million on January 1, 2026 and could potentially decrease to a lesser amount before then, depending on the Presidential/Congressional election results in November.
  • As a result of the pandemic, many states were hit hard economically, leaving them short revenue. States will be looking to find ways to make up for this shortfall, including increasing taxes. Although several states, including New Jersey, have repealed their estate tax, it’s possible some states could bring back their estate tax to help raise revenues. Prior to repeal on January 1, 2018, New Jersey imposed a tax on estates exceeding $2 million, and continues to impose an inheritance tax.
  • New York imposed a tax on estates in excess of approximately $5.85 million as of January 1, 2020. This amount is also indexed for inflation. Because the exemption in New York is not equal to the federal exemption, a New York domiciliary’s estate may still be subject to New York Estate Tax, even if exempt from federal tax.
  • The historically low interest rates we are now seeing provides an ideal environment for estate tax mitigation techniques such as Grantor Retained Annuity Trusts (“GRATS”), and other advanced tools.
  • Unfortunately, the pandemic may have negatively affected the value of your closely held business or other investments. The silver lining is that this provides an opportunity to gift some of these assets at lower values, therefore, preserving more of your lifetime exemption.
  • The SECURE Act, which took effect on January 1, 2020, made significant changes to individual retirement accounts and qualified plans.  Prior to January 1, 2020, a beneficiary (other than the account owner’s spouse) who inherited a retirement account had the ability to take withdrawals from the account over their lifetime. Now, most non-spouse beneficiaries will be required to withdraw assets from an inherited retirement account within 10 years of the owner’s death. This change impacts many estate plans which established trusts to hold retirement assets.

In light of these changes and our current challenges, it is important to have an equipped advisor in your corner, helping to navigate the uncertainties and to capture every beneficial opportunity possible.  Should you have any questions with regards to your estate plan and/or wealth transfer options, feel free to reach out to your Sax advisor for guidance.

Lawrence M. Gradzki, CPA, JD, LLM is a Partner at Sax and Head of the firm’s Trust & Estate Practice.  He specializes in tax planning for closely held businesses and high-net-worth individuals.  He can be reached at [email protected].

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