The pandemic's effect on the economy has led to reduced valuations for many privately-owned and publicly-traded businesses, as well as reduced valuations for real estate and other assets. At the same time, interest rates remain at historically low levels. This unique economic environment can create estate planning opportunities for certain individuals and families. For example, business owners and individuals with assets at currently-reduced values may wish to consider making gifts to children and grandchildren. This is especially so if it is anticipated that those assets will return to (and potentially exceed) their pre-pandemic valuations as economic conditions stabilize. Gifting assets at a currently-reduced valuation could have the effect of removing such assets (and any subsequent appreciation) from an individual's taxable estate while using a relatively small amount of the individual's estate and gift tax exemption. This may include the use of Grantor Retained Annuity Trusts (GRATs), an estate planning technique that could be advantageous given the current economic conditions, and would allow an individual to gift assets at a reduced transfer tax cost. In addition, the low interest rate environment may present opportunities to refinance existing intra-family loans or make new intra-family loans, either on their own or as part of more extensive estate planning.
Originally published 4 May, 2020
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