How Engaging in Estate Planning During Coronavirus Could Let Your Family Keep More of Your Assets
By: Barry E. Haimo, Esq.
July 30, 2020
Months of lockdowns, massive government spending, and unsteady business reopenings in the wake of the COVID-19 pandemic have US financial markets undulating. The economic uncertainty has many clients questioning whether to engage in “coronavirus estate planning” at the moment or to wait it out for now.
While some individual investors’ fears continue to spiral due to the unique nature of this situation, many are certain that the current state of affairs is simply part of the cyclical ebb and flow of economics.
So where does that leave you? Depending on your current planning goals, engaging in estate planning right now could allow your family to hold on to more of your assets permanently.
Your Estate’s Wealth-Building Strategies Beyond Stocks
Interest rates hit lows unseen since 2008, and are still only slowly climbing. Low rates and depressed asset values are two consequences of this pandemic that have created big advantages for increasing an estate’s overall value.
While it is certainly a great time for general investing, there are a number of wealth-building strategies beyond the stock market that you may not currently be utilizing… but could be.
Below is an overview of three of them:
- Grantor Retained Annuity Trust (GRAT)
- Spousal Lifetime Access Trust (SLAT)
- Creating a Family Business Entity
Learn what each one is, who should consider this strategy, and why now may be the right time to implement it.
The Grantor Retained Annuity Trust (or GRAT)
A GRAT or Grantor Retained Annuity Trust is one that is initially funded with assets the grantor expects to appreciate over time. A GRAT allows a grantor (or owner of the depressed asset) to transfer any appreciation while still retaining its base value.
This irrevocable trust will pay a predetermined annuity to the grantor for a certain period of time (a fixed number of years).
Who Benefits from a GRAT?
Firstly, you do. You will realize annuities as explained above and can still keep your property in the end. This strategy is also beneficial to grantors who have children or other immediate family members to whom they wish to transfer future appreciation of certain assets.
It is especially advantageous for individuals who expect their property to appreciate in value but are not certain of it.
Here are some advantages you can expect:
- When annuity payments are set equal or nearly equal to the value of the assets that generate them, there is little to no transfer tax applied.
- Additionally, when GRAT assets appreciate faster than the IRS has predicted, the excess appreciation may be transferred without gift tax implications.
- A GRAT is also a win-win because even in cases where asset values do not appreciate, the grantor may still receive all the assets back in satisfaction of the annuity payment.
- When properly executed by an experienced Florida estate planning attorney, you typically will not see any negative tax consequences if it “fails.”
The Spousal Lifetime Access Trust (SLAT)
Usually, a SLAT takes the form of a grantor trust where the grantor entrusts his or her separate property assets into an irrevocable trust and names a spouse as beneficiary. However, descendants may also be named. Often, distributions of income and principal are made as needed for health, education, and other necessary support.
When Should You Consider a SLAT?
If you are uncertain as to whether your family will need to access the actual assets, a Spousal Lifetime Access Trust may be a better (or additional) option compared to a GRAT, which requires a planned term. This strategy could enable you to benefit from the current economy while keeping indirect access to your assets open.
There is no required term, as there is with a GRAT, so most savvy advisors will explain that in order to maximize wealth transfer benefits, it is wise to limit distributions to a last-resort consideration.
The Family Business Entity
Your family business entity may be another strategic way to grow your family’s estate. Consolidating, managing, and growing your family’s assets through business is a way for you, as a grantor, to contribute to your family’s endeavors without relinquishing full control of your assets.
Who Can Benefit from a Family Business Strategy
Businesses should never be created solely to facilitate wealth transfers. So this strategy is only recommended for those who already have a family business or are planning to open one for purposes outside of tax benefits.
When your family business essentially takes on the function of a trust, as a business owner you have options to give or sell interests held by the entity to family members and other trusts, which will ultimately benefit them.
An experienced estate planning attorney can review your business plans to help you determine whether any of these strategies are right for you.
Why You Should Consider These Estate Planning Strategies Now
Due to coronavirus, there are entire market categories that have been rendered depressed. Many of them, it is nearly certain, will not remain that way — and many more have already begun to rise in value again.
Ultimately, any wealth transfer strategies you plan must be rooted in what feels right for you and your family — not just how a tax benefit may appear on paper. To learn more about how your personal circumstances and assets could help you reach your estate planning goals amidst current economic conditions, reach out to Haimo Law.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.