The worldwide worry over coronavirus creates a glimmer of good news for at least one segment of the U.S. population: the top 0.1%.
The super-wealthy can deploy sophisticated strategies to pass on billions of dollars to their descendants tax-free. Plunging interest rates, combined with lower stock prices, make it even easier to protect those fortunes from the Internal Revenue Service.
The ultra-rich and their advisers can also take a longer-term view of market volatility because their beneficiaries are future generations -- some who haven’t even been born yet.
“They have more money than they could ever spend,” Ali Hutchinson, a senior wealth planner at Brown Brothers Harriman, said of her clients. “Even though this volatility could go on for months, they’re not thinking about it in that short-term way. The smart ones are using it as an opportunity.”
The richer you are, the more options you have to insulate yourself from the virus and its effects. Operators of private jets are seeing more demand from wealthy travelers reluctant to fly commercial. Members of the top 0.1% say they’re in close touch with world-class doctors and are considering fleeing to remote vacation homes in the event of a serious outbreak.
Damaged Stocks
The virus can also be a chance for the wealthy to make money. The most intuitive way is to buy beaten-down stocks in industries like airlines and hotels that are being damaged by the virus but will ultimately survive even a devastating pandemic.
“Are people going to travel in 10 years?” Hutchinson asks rhetorically.
Using the financial turmoil to avoid taxes requires more complex planning. But lower rates and market valuations make this an ideal time to try, advisers to the wealthy say.
“You could almost say it’s a perfect storm for wealth-transfer planning,” said David Stein, a partner on the private client and tax team at Withersworldwide.
The IRS levies a 40% estate and gift tax on the biggest fortunes, exempting transfers of $11.6 million in 2020 for individuals and more than $23 million for married couples. For Americans richer than that, a popular tool to pass money to children and grandchildren tax-free is the grantor retained annuity trust, or GRAT.