Posted On: JULY 2020
As people continue to grapple with the fallout from the novel coronavirus (COVID-19) pandemic, it’s important to consider the impact of the crisis on your retirement and estate plans. Few people are immune to the virus’s financial effects, but there are strategies available that can aid your recovery. These include estate planning opportunities that are especially effective in the current environment, as well as relief available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Tax reform legislation enacted in 2017 doubled the lifetime gift and estate tax exemption — through 2025 — to an inflation-adjusted $11.58 million (a combined $23.16 million for married couples). This creates a window of opportunity to use your gift tax exemption to transfer assets to your loved ones. This window is scheduled to close on January 1, 2026, when the exemption amount drops to $5 million (indexed for inflation), although it’s possible the window will be closed sooner. It’s also possible that future lawmakers will reduce the exemption amount even further. Acting now allows you to lock in the elevated exemption amount and remove any future income and appreciation on transferred assets from your estate.
Another reason to act soon is that in the current economic climate, many assets have declined in value. This allows you to transfer a greater amount of wealth without triggering gift taxes. Also, because interest rates are low, estate planning tools that are most powerful in a low-interest environment — such as intrafamily loans and grantor retained annuity trusts (GRATs) — are especially attractive.
The CARES Act offers welcome tax and retirement relief designed to help people ride out the current storm. Key provisions include:
In light of our uncertain economic environment and the relief provided by the CARES Act, now’s a good time to review your retirement and estate plans and adjust your strategies if appropriate.