Unfortunately for most of us, one of the many impacts of COVID-19 is a reduction in the value of our personal assets. Investment portfolios may be down 25% (or more) year to date, and with the Stay at Home orders in place and various business sectors upended, the value of many businesses is down as well. However, in the midst of this economic turmoil, a major transfer tax savings opportunity exists for those high net worth individuals who want to make significant gifts to their beneficiaries.
Currently, the Federal Transfer (combined Estate & Gift) Tax Exemption for an individual is $11.58 million. Without new legislation, this value will sunset on December 31, 2025, bringing the exemption down to approximately $5 million, with adjustments for inflation. Gifts made now above and beyond the future exemption amount will be respected and transfer gift tax-free. We have been advising our clients whose assets are below the current exemption to consider gifting now for protection against a future reduction in exemption. This holds true now more than ever, as gifting while asset values are low utilizes less of a transfer tax exemption, resulting in more assets that you can pass tax-free to your beneficiaries!
Consider the following techniques:
Although we highlight the trusts above as particularly beneficial during these times, there are other types of irrevocable trusts that may be more suited to your personal needs. We are optimistic that the current economic situation will rebound, but less optimistic that the transfer tax exemption will remain high, so the time to act is now!