Now is a Great Time to Explore Estate Planning Strategies

Amidst the turbulence of 2020 it can be tempting to hold off on making long-term plans. That thinking is wrong. The current economic climate, combined with tax rules that are favorable today but may disappear in the future, makes now a great time to explore estate planning strategies.

Ferguson Timar is proud to serve clients who need the sophistication our professionals offer. These are just a few of the ideas we are exploring with clients who want to preserve their wealth now and for their next of kin:

  • Make gifts while asset prices are low.

Current rules are favorable for parents who wish to make gifts during their lifetimes. In 2020 a gift to an individual of up to $15,000 is exempt from the gift tax. Any amount over $15,000 must be reported on IRS Form 709. Form 709 does not trigger a tax. Rather, the IRS uses it to track gifts to the recipient against the lifetime exclusion. In 2020, the recipient will owe taxes on any lifetime gift amounts in excess of $11.58 million—an all-time high.

The economic fallout of the coronavirus pandemic has undercut asset values in many sectors. Individuals who have substantial assets to transfer may wish to take advantage of the current low value of those assets to make gifts in 2020. Doing so will optimize the

  • Consider loans instead of gifts.

Parents who are concerned about giving away too much of their retirement nest egg but who still want to help their kids pay for major expenses might wish to provide a loan instead of a gift. Loans between related parties must carry a minimum interest following the Applicable Federal Rates (AFR) established monthly by the IRS. In June 2020 the AFRs are extremely low, with a long-term rate of only 1.01%. Using a simple loan agreement, parents can help their kids without implicating gift taxes or drawing down too much of their savings.

Bear in mind that certain types of gifts are exempt from the gift tax or have other implications. For example, tuition payments made directly to a college are not subject to the gift tax. Another common scenario involves parents who wish to support their children in buying a home. Mortgage lenders generally require down payments to be made from unencumbered funds. In other words, gifts typically are the right way to support a child’s home purchase.

  • Consider a generation-skipping trust.

A generation-skipping trust (GST), as the name suggests, bypasses the grantor’s kids to name grandchildren (or anyone else who is 37 and a half years old or younger) as beneficiaries. By structuring a trust this way, a grantor ensures that children avoid estate taxes. A GST can be structured to provide the “skipped generation” income from its assets, so the grantor’s children aren’t necessarily left out.

Under current rules, GSTs are especially attractive tools for avoiding estate taxes. Through 2025 a GST can transfer assets valued at up to $11.2 million per individual without being subject to estate taxes. Gifts to GSTs currently can be made to unlimited generations into the future, allowing high net worth individuals to lock in current high exemptions for the very long term.

Look to the future with Ferguson, Timar & Company

Estate planning requires a close analysis of individuals’ and couples’ short- and long-term plans.  At Ferguson Timar we take a proactive approach with every client. Our goal is to position our clients to save on taxes both now and into the future, while positioning their assets to go further and do more for themselves and their loved ones. To make an appointment with one of our experienced tax professionals call (714) 204-0100 or send us a message from our contact page.