Low interest rates that affect estate planning in uncertain times

Written by Apartment Management Magazine on . Posted in Blog

Low interest rates that affect estate planning in uncertain times

There has been a lot of uncertainty during the last few months in 2020, such as COVD-19, the shutdown of our economy, high unemployment, increased national and state level loss of revenue and increase debt, besides the national protests in our country.  Adding to the continued uncertainty will be our national and state elections in November.  Given the uncertainty of our national and state governments, how will the national and state governments raise money to pay the loss of revenue and increase of governmental debt? 

There has been much speculation regarding what our elected politicians will do solve our ongoing economic situation after the November 2020 election.  The general consensus is that there most likely will be an increase in income tax rates and a potential reduction of the current 2020 estate and gift tax exemption amount of $11,580,000 for an individual ($23,160,000 for a married couple).

What, if anything, should a person do if he or she believes that change is certainly going to be around the corner?  I have been advising most of my clients to wait and see what happen in the November election.

Concept.  Currently the interest rates that affect estate planning are the lowest in history.  Many commentators are recommending various simple gifting planning compared to the more sophisticated gifting and estate planning techniques listed below.  The basic concept is if you gift or transfer an asset to your child or grandchild, and the money gifted or assets transferred appreciation exceeds the current interest rate that increase in wealth will not be in your estate for estate tax purposes.

Typical Estate Planning Techniques in Low Interest Environment:

  1. Outright gifting.
  2. Intra-family loans (“Loan”).
  3. Transfer of depressed assets.
  4. Sale to Intentional Defective Grantor Trust (“IDGT”).
  5. Qualified Personal Residence Trust (“QPRT”).
  6. Grantor Retained Annuity Trusts (“GRATs”).
  7. Charitable Remainder Annuity Trusts (“CRATs”).
  8. Charitable Lead Annuity Trusts (“CLATs”).

The selection of the above planning depends upon what you want to accomplish regarding having any income stream returned to you from either a Loan, IDGT or CRAT.  Once the outcome of the national elections has been determined, I believe it would make more sense to decide whether or not to make any gifts or not because of a possible change of the estate and gift tax exemption amount.