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Additional Estate Planning Opportunities Amid the Crisis

COVID-19 has greatly impacted the stock market, closely-held businesses and real estate. The economic uncertainty has substantially reduced fair market values. However, families with large estates can now take action to reduce their exposure to federal and state estate taxes in the future.

As property and other investment values are hopefully only temporarily depressed, transfers can be made to family members using less of your lifetime exclusions and exemptions. That is, transfers can be made reducing future gift and estate tax costs.

With financial interest rates at historically low levels numerous estate planning techniques become more advantageous and effective for reducing taxable estates. Favorable inter-family loans can be made without gift tax consequences at lower rates. Asset transfers to family trusts can be created and funded to leverage the value and take advantage of the estate and gift tax exclusions and credits. Examples include certain split-interest charitable trusts such as Charitable Lead Annuity Trusts (CLATS) which may be extremely effective. Other noncharitable efficient trusts for families include Grantor Retained Annuity Trusts (GRATS) and Intentionally Defective Grantor Trusts (IDGTS).

For business owners seeking to sell a business the use of a Charitable Remainder Trust (CRAT) may be utilized to transfer benefits to family and reduce income taxes as well.

Trusts may need to be created or revised to provide income tax as well as gift and estate tax advantages. The transfer of assets to or from trusts may impact the cost basis of assets in the hands of beneficiaries.

This may be a good time to meet with advisors to review the benefits of trust planning.

We now find our federal and state governments under pressure and using substantial financial resources to support individuals and businesses during this pandemic. The current federal estate and gift exemption of $11.58 million will be cut nearly in half by 2026 under existing law. However, with the financial burdens growing for government segments, changing political winds and elections in the fall, reduction of the federal exemption and other related state benefits could be targeted to boost government revenues.

Now is a good time to review your planning and act. Such steps can be undertaken even in this environment of restricted mobility.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.