The pandemic’s affect on the market and an upcoming election give wealthy clients a lot of new considerations in estate planning this year—with potentially big financial impacts.
“Beyond wills, this is a time for people to think more broadly about the tax consequences of their plan,” said Kim Bourne, CPA/CFP, CEO and founder of Playfair Planning Services in New York.
“It’s a good time to review estate documents, powers of attorney, medical directives and fiduciary appointments,” added John Voltaggio, managing director and lead relationship manager at Northern Trust Wealth Management in New York. “Now is also a good time to move assets to revocable trusts to avoid having to rely on overburdened probate courts.”
Among other current considerations, reduced exemption amounts have resulted in a surge of wealth transfer planning. Moves that are sensitive to interest rates, such as grantor retained annuity trusts, sales and loans to family or trusts in exchange for loans, are also popular but could lose their effectiveness in future conditions.
“Transferring assets this year under the historically high estate tax exemption could save millions of dollars in transfer taxes down the road,” added Joe Roberts, senior vice president and senior wealth strategist at Rockefeller Capital Management in Philadelphia.
The race for the White House isn’t the only wild card for the future of tax law for estates. “If the elections change the party holding Congress, will the wealthy be hit with higher estate tax liability? We should be planning or implementing now,” said Jeffery Neher, an Avantax Wealth Management advisor in Wenatchee, Wash.
Frequent freefalls of incomes and investment returns is another motivation for at least a partial Roth conversion now instead of waiting for the market to solidly recover, said John Vento, a CPA/CFP in New York with Avantax Investment Services and Avantax Advisory Services. “If you’re holding securities with unrealized losses in non-retirement accounts, you may want to consider selling and then replacing them with other securities that you consider undervalued,” he said. “This will allow you to harvest some tax losses and then defer the gain on the replacement securities you purchased at the lower prices.
“Start taking advantage of most of these now since some of them are time-sensitive and are dependent on market conditions,” Vento added. “It’s currently unlikely that another relief package will be agreed on by the government, but if something changes you can always take advantage of any new strategies before the end of the year.”
Many privately held companies have seen their values plummet even though their business fundamentals remain strong.
“Transferring ownership stakes to heirs could be a good idea, but giving up control is never an easy decision,” Bourne said. “Creating grantor retained annuity trusts allows high-net-worth individuals to give their heirs any future appreciation on the asset in the trust. If a person put a concentrated portfolio of stock that was down 25% into one of these trusts and that stock rebounds 40% over the next two years, all of the growth above a nominal IRS interest rate would go tax-free to the heirs.”
The stretch provision for traditional IRAs has also been eliminated. “Married couples tend to name their spouse as their primary beneficiary and their children or a trust as a contingent beneficiary. If you can’t spread a tax hit over your non-spouse beneficiaries’ lifetime, you may want to change your beneficiaries,” she added. “New legislation means it may make sense for the primary designation to be split between spouses and children.”