Wealth Transfer Planning in the Face of the Novel Coronavirus COVID-19

First and foremost, we hope you and your loved ones are safe and healthy during this challenging time.

Difficult times often present opportunities. Our firm remains committed to finding these opportunities to add value to our clients. The combination of a drop in market values, lowered interest rates and a high estate tax exemption have made a number of estate tax planning techniques particularly advantageous.

Gifting

Depending on the value of the asset, transferring property out of your name via gifting often requires you to use some or all of your estate tax, gift tax or GST (generation-skipping tax) exemptions. Gifting property while its value is temporarily (we hope!) low, allows you to remove the asset from your taxable estate while retaining more of your exemptions. The growth the asset experiences once transferred may then also avoid estate tax, gift tax and GST. As such, this may be a good time to consider making gifts of property that have recently declined in value.

Private Annuities, Grantor Retained Annuity Trusts (GRATs) & Installment Sales

While each of these wealth transfer strategies utilizes different techniques, they all rely in part on interest rates in calculating payment for assets transferred. In a low interest rate environment, this would allow for lower payments to be made for the duration of the applicable agreement. Additionally, if and when the transferred asset increases in value, the corresponding appreciation may avoid estate tax, gift tax and GST. These strategies are often used to leverage the amount of wealth transferred in wealth transfers, and the leverage may have greater effect given low rates of interest and the recent decline in property values.

Estate Tax Returns

If there is an estate tax due as the result of a decedent’s recent passing, the IRS allows the estate tax filer to value the decedent’s assets as of the date of death, or as of six months after the date of death, known as the “alternate valuation date”. If you are currently administering an estate and the alternate valuation date falls in the recent market downturn, you may want to consider using the alternate valuation date if it could result in lower valuations and therefore a lower tax obligation.

Taking Stock

Now is also a good time to take stock of your current estate planning documents, including your Wills, Revocable Trusts, Health Care Directives and Powers of Attorney to make sure they reflect your current needs and wishes.

The current travel and business restrictions in place under Governor Murphy and Governor Cuomo’s Executive Orders, as well as social distancing, create practical challenges to executing documents due to the requirements that witnesses and or notaries be present at certain signings. Despite this, we will do our best to arrange for the execution of documents during this time or immediately after the restrictions are lifted. Our team of attorneys is working remotely and can assist you via phone, email and video conference.

For additional advice and  guidance, please contact Judson M. Stein, Esq., Chair of the Trusts, Estates & Wealth Management Practice Group.