March 22, 2020
While COVID-19 spreads in our world, our country and our communities, many may feel that they are only reacting to the news and circumstances surrounding them. But, there are ways to be proactive during this time as we socially distance ourselves and worry about our health and the health of those around us, as well as the volatility in the markets.
From a planning perspective now is a good time to:
Some of us might find ourselves with more free time as we practice social distancing and limit our social engagements. We might also find ourselves worrying about our own health or the health of others. One thing we can do right now to proactively plan is review our estate planning documents. Some documents and questions to consider include the following:
As we watch the volatility of the markets and see lower market values in many portfolios, it may feel like an inopportune time to engage in planning. However, when market values are low and you expect them to recover, it can be a good time to implement strategies that will take advantage of the ability to move wealth, or prepay taxes on retirement assets, at those low market values, potentially providing significant tax savings in the future. The following six techniques work well when markets are volatile and market values are low:
A grantor retained annuity trust is an irrevocable trust in which the grantor makes a gift of property in trust while retaining a right to an annual payment (annuity) from the trust for a specified term of years. GRATs can be used for a variety of assets, including assets expected to appreciate significantly. Key characteristics of this strategy include:
Read the full article and listen to our podcast: Benefits of a GRAT when market values are low
The installment sale to a grantor trust strategy takes advantage of the significant differences between the income and transfer tax treatment of irrevocable trusts. The goal of this strategy is to transfer anticipated appreciation of assets at a reduced gift tax cost. Key characteristics of this strategy include:
Listen to our podcast: Proactive planning with low market values using a sale to a Grantor Trust
A spousal lifetime access trust, also known as a lifetime credit shelter trust, may be appropriate for people who are hesitant to give away significant assets now but want to take advantage of the increased lifetime exemption amount, especially while market values are low. Key characteristics of this strategy include:
Read the full article and listen to our podcast: Proactive planning with low market values using Spousal Lifetime Access Trusts
When you convert a traditional individual retirement account (IRA) to a Roth IRA, you pay ordinary income taxes, and possibly the Medicare Surtax, on the amount converted in that year. As a result of paying those taxes, however, the full value of the IRA is then positioned for potential future growth and eventual tax-free distribution to beneficiaries. Key characteristics of this strategy include:
Read the full article and listen to our podcast: Proactive Planning in Volatile Markets with Roth Conversions
An individual can make loans to family members at lower rates than commercial lenders without the loan being deemed a gift. Key characteristics of this strategy include:
Read the full article and listen to our podcast: Proactive planning with low interest rates using intra-family loans
An individual can make an outright gift to one or more individuals to take advantage of the increased lifetime exemption amount. Key characteristics of this strategy include:
Read the full article and listen to our podcast: Proactive planning with low interest rates using gifts
If you are interested in engaging in planning to take advantage of the current market environment, we encourage you to speak with your tax advisor to explore whether any of these strategies could be right for you.
View additional wealth planning resources.
Find our ongoing updates, analysis and insights on the potential economic impact of the uncertainty surrounding the outbreak and related events.
Theresa Marx is a managing director and senior wealth strategist for CIBC Private Wealth Management in Chicago, with 16 years of industry experience. In this role, she is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high net worth clients.
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