Being Opportunistic With Estate Planning During COVID-19

COVID-19 has unleashed a wave of selling on Wall Street, which has negatively affected stock asset values. The stock market is off nearly 20% as of late April 2020, and the economy seems headed for a long period of uncertainty. You should review your estate plan right now to see how falling asset values could change what you’ve planned for and open advantageous strategies.

You Can Gift Opportunistically

You can give up to $15,000 to someone in a year and not have to worry about paying gift taxes on it. If you’re like most investors, the stocks in your portfolio have likely taken a beating along with the overall stock market. This is actually an opportunity to take advantage of the stock drop to gift your property at a lower valuation. If you think that the stock price is likely to come back, you can gift it now, and your beneficiaries will be able to take advantage of the increase when that happens. This gives more to others who you want to get your assets and keeps the stock out of your estate. Thus, your estate’s tax obligations are lowered.

Qualified Personal Residence Trust

A Qualified Personal Residence Trust is another way to take advantage of a depressed asset price and freeze the value in place for future tax considerations. Specifically, a QPRT could be used for a home that has suffered in value as the real estate market feels the effects of COVID-19.

This type of trust would also be aimed at reducing tax obligations. You would be taking advantage of the lower price of the house when you put it into a trust and transfer it to your beneficiaries. They would not be responsible for taxes on the increase in price as the house recovers in value when the market turns around.

This does not mean that you would have to move out of your house and find somewhere else to live. The trust would have a set term where you could stay in the home without paying rent. When that term expires, you would need to pay rent to your children.

Grantor Retained Annuity Trusts

Interest rates have also moved to extreme lows as the Fed tries to jump-start the economy. This makes a Grantor Retained Annuity Trust a more advantageous option.

In a GRAT, you deposit certain property into a trust for a fixed period of time. While the trust is in effect, you will receive fixed payments based on the fair market value of the property in the trust. Not only is this a way to transfer property at a reduced price, but it also becomes more attractive when interest rates are lower. This is because it affects the fixed payments that are payable. The lower the interest rates, the lower the payments to you, which makes the GRAT more effective as a means of tax-free wealth transfer. The GRAT will lower your estate’s tax obligations and can keep you from owing gift taxes on transfers.

Now Is Not the Time to Neglect Estate Planning

Many people try to avoid looking at their finances or doing anything with their estate plan when the stock market goes down. Perhaps they are afraid of actually checking their portfolio and getting a handle on their reduced net worth.

While this is understandable, you could be missing out on an opportunity if you simply put your head in the sand during this time. Not only can you take advantage of various estate planning opportunities, but you will also lock them in at asset prices and interest rates that can qualify your estate for favorable tax treatment in the future. An estate planning lawyer could fully explain all the possible ways you may use this current crisis as the springboard for a stronger estate plan.

Contact The Knee Law Firm in Hackensack at (201) 996-1200 speak with an estate planning lawyer and to find out how you can make this market turmoil work for you.