As the turmoil on Wall Street wreaks havoc on the portfolios of America's wealthy, advisors will be gathering in Orlando, Fla., for the pre-eminent convention in estate planning: the Heckerling Institute's annual conference, which takes place January 12-16. The event couldn't have come at a better time, since the market downturn has enabled individuals to transfer wealth more cheaply than ever before, creating a window of opportunity unlikely to be seen again in this lifetime, experts say.
"We could look back on this as a historic opportunity for people," says Alan F. Rothschild Jr., an attorney with Hatcher, Stubbs, Land, Hollis & Rothschild in Columbus, Ga.
If conference attendance is any indication, planners want to learn more about how to exploit the unique opportunities that exist today. Attendance is up this year by about 100, according to Tina Portuondo, the Heckerling Institute's director.
"I wasn't expecting that," she says.
While the conference, put on by the University of Miami's School of Law, will cover a variety of topics-from the typical estate planning problems to planning for children with special needs-the focus is expected to be on the advantages to be gained by the current economic downturn. Speaker Jo Ann Engelhardt, a managing director at Bessemer Trust, says estate planners will be shown how to make lemonade out of lemons.
"Every economic climate benefits individuals in some positions and hurts some in others," she says, citing low interest rates as an example. "There are certain estate planning techniques that are very beneficial in a low-interest-rate environment."
In one panel entitled, "If I Knew Then What I Know Now: Practical Solutions to Recurring Estate Planning Problems," Engelhardt and other speakers will highlight some of the difficulties caused by the current economic climate. Trusts, for example, may no longer produce sufficient income. The family vacation home may become a bone of contention if one child who has fallen on hard times wants to sell it while his siblings prefer to retain it. The family business may no longer qualify for an estate tax deferral.
But opportunity is also arising, in part from the fact that asset values are depressed, making it a good time to expose large gifts to the federal estate tax. Indeed, a number of Heckerling's speakers will focus on the benefits of the grantor-retained annuity trust (GRAT)-an irrevocable trust into which a person places assets while retaining the right to receive fixed payments, or an annuity, that is presumably generated by those assets. At termination, all the accumulated income, principal and appreciation in excess of required annuity payments passes to children, either outright or in trust.
The advantage of a GRAT is that the gift tax is paid on the value of the assets that are put into the trust, not how much they're worth years later, when the annuity terminates. Moreover, the Internal Revenue Service only taxes the amount of money expected to be left in the trust once the annuity payments have been made (a predetermined interest rate determines the payment amounts). Those creating GRATs now can put depressed assets into the trust and calculate the tax payment based on current asset values. When the economy picks up and asset values rise, the children will received the additional value free of estate taxes.
An added benefit to the current economic environment is that with interest rates low, the IRS' formulas for calculating how much an annuity must pay out are a lot lower, leaving a greater percentage of the assets remaining in the trust that can then be passed on to one's children. In June of this year, for instance, the rate was 3.8%, while in August of last year, the rate was 6.2%.