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Estate and Gift Planning Strategies Amid COVID-19

Gift and trust planning often weighs on many, especially during a significant crisis as what we are currently amid. COVID-19 and the current economic situation has resulted in a very low-interest-rate environment and portfolio value decline. Additionally, valuations of many businesses will likely be down in our current economic environment. Cynthia Turoski and Anthony Duffy highlighted this during their recent webinar on April 9, 2020.

This is not all bad news though. This situation creates a great opportunity to transfer lifetime accumulated wealth to another generation in a very tax advantageous way. Since assets are now depressed in value, this allows transferring more wealth by using “less.”

The Federal estate and gift tax exemption is $11,580,000 ($23,160,000 for a married couple). This law is scheduled to revert to lower levels on December 31, 2025. In an uncertain economic environment that we are currently in, it is possible that this level of exemption could be reevaluated by the current or future administration sooner than anticipated. Therefore, if you are considering utilizing this elevated exemption, it is important to be proactive now.

Gifting assets during a time when assets are at a low value means that less of the estate and gift tax exemption will be used to accomplish the same result. Additionally, if you are resident of a state (such as New York) that does not have a gift tax, gifting now can benefit you down the road since New York’s lifetime exclusion is much lower than the Federal level (i.e. eliminate value from your current estate).

Charitable planning is also a great option during crisis times. Not only is it a great estate tax strategy, but it also has an obvious benefit to support the community and provides financial support to those suffering during this crisis. Charitable trusts create an opportunity for assets to pass to either beneficiaries or a charity, depending on the type of trust you create. These are known as Charitable Lead Trusts or Charitable Remainer Trusts. The low-interest-rate environment we are in means you would use less of your estate and gift tax exemption when setting up these types of trusts.

Finally, as part of the CARES Act, the limits of deducting cash contributions are relaxed. Up until now, only cash contributions made to a charity of up to 60% of your adjusted gross income were deductible. Now you can deduct a full 100% of your adjusted gross income for 2020 (with certain limitations). There is also a $300 above the line deduction for individuals that do not itemize in 2020.

As a final note, there are many different types of estate planning vehicles and plans to suit the needs and goals of each situation. One size does not fit all in this case. Wealth transfer vehicles as noted above, as well as items such as Intentionally Defective Grantor Trusts, Grantor Retained Annuity Trusts, Intrafamily Loans, etc., are available. Each situation is different, and you should be in contact with your tax advisor to help design a plan that is right for you and your family or contact any of our Estate and Trust team experts for additional information.

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.