While it would be nice if it were, estate planning is not a once and done process. Instead, it is important to routinely review the terms of your estate plan to make sure that it is capable of achieving your goals. Reviewing estate planning documents is particularly important nowadays, during a time of low-interest rates and high exemptions which are likely to change in the not-so-distant future.
Fortunately, it is possible to create estate planning strategies that allow assets to be transferred in a way that makes the most of these terms. If you are interested in making the most of your estate plan and positioning your loved ones in the best possible manner after you pass away, you should continue reading because this article reviews some important strategies that will likely have a significant influence on your estate.
# 1 – Exemptions Are At An All-Time High
Due to the Tax Cuts and Jobs Act of 2017, a person can transfer up to $11.58 million during their lifetime or at death without being subject to federal taxes. For the amount above this exemption, the assets are subject to a 40% tax. Provided that President-elect Biden or his administration does not pass legislation lowering the amount sooner, this exemption will be reduced to half this amount in 2026. As a result, for individuals with estates who would be subject to these exemptions, it is a good idea to consider gifting now rather than waiting.
# 2 – Interest Rates Are At an All-Time Low
The Internal Revenue Service established interest rates that apply to asset transfers. These applicable federal tax rates (AFRs) are modified monthly and utilized for things like intra-family loans and installment sales. While the AFR in November 2018 for a mid-term loan compounded annually was 3.04%, the same rate in 2020 is .38%. Because AFRs will not stay at this ideal low rate for long, now is an excellent time to consider installment sales or intra-family loans, if either is necessary.
While on the subject of intra-family loans, it is worth considering Intentionally Defective Grantor Trusts. More complex than intra-family loans, these trusts allow assets placed within the trust to grow on an income-tax-free basis. Other trusts like grantor trusts and charitable lead trust annuities when utilized during a period of low-interest rates can also be powerful estate planning tools.
# 3 – Thoroughness Is More Important Than Ever
While there are some unique estate planning opportunities during the pandemic, these times have also increased the need to make sure that certain types of estate planning documents are properly created. For example, during the covid-19 pandemic, it is more important than ever for health care proxies to be properly written in advance of any emergencies. This is because due to social distancing and the nature of how covid-19 patients are treated in hospitals, it can be difficult to directly contact loved ones should an emergency situation arise. A healthcare proxy provides the important function of letting spouses or other family members view your health records as well as make medical decisions. It is also important to make sure that details about loved ones can access your digital assets and accounts are also properly recorded.
Contact a Seasoned Estate Planning Attorney
While your estate planning goals are your own, a knowledgeable attorney can help you make sure that your estate plan conforms to all existing laws. An attorney can also resolve any uncertainties or questions that you have about the estate planning process. Contact Ettinger Law Firm today for assistance.