Skip to Content

Estate Planning Opportunities During Difficult Financial Times

Estate Planning Opportunities During Difficult Financial Times

Our legal team at Dossey & Jones, PLLC hopes that you and your loved ones are safe and healthy during this challenging time. With the coronavirus (COVID-19) pandemic devastating the economy, many of our high-net-worth clients have reached out to our legal professionals to get estate planning advice to make sure their assets are protected in this tough financial environment. Although assets are devalued right now, interest rates are also extremely low (April 2020 Applicable Federal Rate, 0.91%-1.85%, known as the “AFR”), creating a phenomenal opportunity to transfer assets to descendants. If you want to take advantage of low-interest rates, consider the following:

Grantor Retained Annuity Trusts (GRAT)

A trust is set up to provide an annuity to a grantor, with the remainder to the grantor's children (or their trusts). If the assets in the trust appreciate faster than the current AFR, then the excess goes to the Grantor's kids without using any of the Grantor’s estate tax exemption. Many wealthy families use a rolling GRAT strategy where they use a series of short term GRATs to continually transfer assets downstream.

Charitable Lead Annuity Trusts (CLAT)

This type of trust is similar to a GRAT, except the annuity payments are made to a charity. The benefit of this approach is that the grantor gets an immediate tax deduction for the gift to the CLAT. The value of the annuity is calculated based on the value of the property gifted to the CLAT and the 7520 rate at that time, which as of April 2020 is 1.2%. At the end of the term, the appreciation in the value of the CLAT property exceeding the 7520 rate at the time the gift passes to the CLAT beneficiaries will be free of federal estate or gift taxes.

Sales to Grantor Trusts

Business owners may also consider sales of assets (including business assets) to irrevocable trusts in exchange for a promissory note as a way to transfer assets to descendants. In essence the trust purchases the assets and pays the business owner back based on a promissory note. The trustee of the trust (usually the business owner) will maintain sole control. The promissory note must charge interest, but this is extremely low given the current interest rate environment.

Dedicated Estate Planning Attorneys Serving Montgomery County

Do you have more questions about using the current low-interest rates to strengthen your estate plan? If so, our legal team is here to assist you. We may never see interest rates this low again, so please don’t hesitate to get in touch with our attorneys at Dossey & Jones, PLLC to discuss your estate planning matters further.

Call our law firm today at (281) 410-2792, or contact us online to get started on your case evaluation.

Share To: