4 Crucial Things For Estate Planning

Forbes - June 22, 2020


The stock market may have rebounded, but questions linger about the future now that we’re in an official recession—and a bad one, from the looks of things. The environment is different nowadays, especially since Congress passed its rescue package and the Federal Reserve reduced short-term rates to near-zero. How should people do estate planning now? Andrew Holstine, a partner at the law firm of Schoenberg Finkel Newman & Rosenberg in Chicago, pinpoints four important areas to plan for, and tells us how to do this:

Larry Light: How does the Fed’s rate reduction affect estate planning?

Andrew Holstine : These benchmark rates are used by the IRS to set rates used in a variety of personal and estate planning tools such as family loans, charitable trusts and grantor retained annuity trusts or GRATs.

These factors, and the current economic environment, affect family businesses differently and, not surprisingly, there is not one solution for everyone.

Light: Business succession is first on the list. Holstine: Now is a great time to review this plan and stress test it to determine if your plan still meets your goals. For example, you can critically evaluate if the payout formula is equitable or if the plan is well-funded. Additionally, if you are looking to pass equity in your company to the next generation, now can be an ideal time to accomplish this in a tax-efficient manner.

Light: And then there are intrafamily loans.

Holstine: It is not uncommon for one generation to help finance succeeding generations, usually through a combination of gifts and loans. If you are in a position financially to support your descendants, now is a great time to make this happen. Also, if you have an existing loan, you can refinance it. But you should be cautious before making any adjustments. There are simple precautions you should take before changing loan terms that avoid an IRS challenge.

Light: And wealth transfer, via a GRAT? Like what happens if there’s not enough money left in the GRAT dad set up to pass to the kids after he uses it up to fund his annuity?

Holstine: You should review your existing GRAT or create a new GRAT to transfer wealth. A GRAT is a trust intended to transfer appreciating assets to your beneficiaries tax-free. A parent might contribute assets to the trust, agreeing to receive a series of annuity payments. These payments are a return of principal plus a rate of return based on current interest rates. After annuity payments are made, remaining trust assets are passed to your beneficiaries. A low interest rate plus appreciating assets increase the likelihood of significant wealth transfer. If the assets owned by the trust do not appreciate, nothing is transferred and the GRAT fails.

If you have a GRAT, you should review this now to determine if it is likely to fail. Instead of waiting for such a failure, you can unwind the existing GRAT and create a new GRAT to hold the devalued assets. A proactive review can greatly increase the likelihood of success in passing wealth to your beneficiaries tax-free.

Light: And the fourth area, generation-skipping trusts, where the grandparents would bequeath their money to their grandchildren, thus skipping over the middle generation and avoiding estate taxes?

Holstine: If you are the grantor or beneficiary of an irrevocable trust or if you desire to maximize assets that you leave to your family exempt from generation-skipping transfer tax, there are strategies to leverage these trusts and maximize trust assets.

For instance, a grandparent can make a gift to a trust for grandchildren, seeding this trust with assets. The trust can then purchase devalued assets from the grandparent using an installment note at a low interest rate. The grandparent receives a series of payments on the note while transferring substantial assets out of their estate, avoiding estate tax, and leveraging the current market. This same concept works for any existing irrevocable trust, such as a family trust or existing GST trust, moving assets that are subject to estate tax into a trust that is exempt from estate and generation-skipping transfer taxes.






This article was written by Larry Light from Forbes and was legally licensed by AdvisorStream.



Copyright 2020 Dow Jones & Company, Inc. All Rights Reserved.


The information in this communication or any information within the Asset Strategy Advisors, LLC domain, and or any attachments to any AdvisorStream communication is strictly confidential and intended solely for the attention and use of the named recipient(s). If you are not the intended recipient, or person responsible for delivering this e-mail to the intended recipient, please immediately notify AdvisorStream at privacyofficer@advisorstream.com and destroy all copies of this e-mail. Any distribution, use or copying of this e-mail or the information it contains by other than an intended recipient is unauthorized. This information must not be disclosed to any person without the permission of AdvisorStream LTD. Please be aware that internet communications are subject to the risk of data corruption and other transmission errors. For information of extraordinary sensitivity, we recommend that our clients use an encrypted method when they communicate with us.

  • LinkedIn Social Icon
  • Facebook Social Icon
  • Twitter Social Icon
  • YouTube Social  Icon

To view a copy of our Customer Relationship Summary (CRS), please Click Here

Advisory services offered through Asset Strategy Advisors, LLC. (ASA), Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC, Insurance offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS. To access Concorde’s Form Customer Relationship Summary (CRS), please click here.

Asset Strategy does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.

There is no guarantee investment plans will meet its objectives.

This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every advisor listed. For additional information, please contact Asset Strategy at info@assetstrategy.com. 

© 2020 Asset Strategy, LLC 

 Privacy & Use Policies  |  Broker Check  | Tax & Legal Discloure