The market crash of 2008 caused many to panic. Today, many companies have seen values plummet even if the business remains strong and the depressed value is temporary.
The beneficial estate tax mitigation thresholds at both the federal ($11.58M) and state ($5.85M) levels are set to sunset in 2026 or possibly much sooner depending on the change in political landscape.
The IRS continues to put valuation discounts in their sights for elimination. However, for now, valuation discounts of 30% or greater remain available on gifts and sales to family members and trusts established for their benefit. Now is the time to plan, not panic.
The financial effects of today’s pandemic have created a significant window for planning. You need to consider the following:
- The creation of a Grantor Retained Annuity Trust (GRAT) for the benefit of the next generation. This trust would act as the receptacle for gifts to heirs of the asset transferred into trust together with any future appreciation. For example, if the individual transferred stock that may have lost 20% in value into one of these trusts and that stock rebounds by 30 to 40% then that growth above the nominal IRS rate would go tax free to heirs.
- The transfer of closely held stock in a family business into a Grantor Trust. The Grantor or Dynasty Trust will provide future generations with many tax advantages, which when combined with the extraordinary leveraging power of valuation discounts, will not only grandfather in but leverage the current exemption many times over.
- Converting a traditional retirement account to a Roth IRA. Pay the tax now and be done with it. The conversion is almost a no brainer where the value of the retirement account is so much lower today than before the onset of COVID-19 and its aftermath. The portfolio then grows tax free into the future.
Now is the time to act!
These are but a few of the planning opportunities available today for those of vision. We at the Ansanelli Law Group, LLP have the requisite expertise to provide assistance and would be happy to provide our seasoned insight on how best to accomplish your objectives.