Take Two: Estate Planning is (Still) On Sale Again, But the Time is Short!

Murtha Cullina
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Six months ago, the greatest global economic contraction of our lifetimes began. We could not foresee then how widespread and cataclysmic it would be, but we knew that for those clients with fortitude and foresight, the opportunities for smart and effective estate planning were vast. Depressed asset values, low interest rates, and volatility combined to create the perfect storm of estate planning opportunity.

In our March 2020 newsletter, which is set forth in full below, we discussed the planning tools that would allow clients to utilize current estate and gift tax exemptions that we knew were set to expire by 2026. We discussed outright gifts to family members, intrafamily loans, Grantor Retained Annuity Trusts (“GRATs”) and sales to grantor trusts. Fast forward six months, with contested presidential and congressional elections less than two months hence, and the focus has shifted to the possibility that our historically high estate and gift tax exemptions could actually be reduced retroactively to January 1, 2021 if the composition of the presidency and the Congress shifts dramatically.

Although asset values have recovered modestly, volatility is still high, and interest rates are dramatically lower than they were even in March. In fact, the key federal interest rate that provides the foundation for most leveraged estate planning strategies, the Section 7520 rate, dropped from 1.8% in March to 0.4% as we write this newsletter in September. There is nowhere to go but up, so the time is now to lock in leveraged planning strategies that use this low rate.

Good foundational estate planning strategies are timeless, but layering on additional strategies that work well in volatile, depressed, low interest rate environments can amplify the benefits of those foundational strategies with great effect and great tax savings for your family. Your ability to accomplish that may end on December 31, 2020, even though we may not know that until well into 2021. Therefore, the time to act is now!

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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