Depressed Valuations: What You Need to Know

Coronavirus has not only caused an uproar in our personal lives, but it has been all the rage in the estate planning community. The pandemic has given depressed asset values a way to rebound. This resulted in low federal interest rates, and created a potential fleeting tax policy.Depressed Valuations: What You Need to Know

What Are Depressed Valuations?

Depressed valuations are measured when the value of your assets are transferred. If the assets appreciate in value after being transferred, the appreciation typically won’t have estate or gift tax, and the person legally entitled to the property will benefit. On the other hand, if you transfer assets to family members when values are depressed, it is more likely they will receive a tax–free wealth transfer. 

If there is a dramatic decrease in the valuation of investment portfolios and potentially privately held businesses with the current estate, gift, and generation-skipping tax exemption, it gives clients the opportunity to maximize the transfer of wealth that might normally be subject to estate, gift and/or generation-skipping tax. 

To add, if families have had a loved one pass away within the last 6 months, the alternate valuation date should be considered when filing the estate tax return. Due to the current environment of depressed asset value, the lower values might help reduce the net estate.  The entire estate will be taxed from the first dollar. By lowering the taxable estate, it means that there are fewer taxes that will be paid and more money left over for your family.    

Related Article: What Types of Assets are Subject to Probate?

Why Are Depressed Valuations Important?

Due to the transfer, the value of the property is, for gift and estate tax purposes, effectively frozen at the value at the time of the transaction (this is because the transfer is subject to gift tax at today’s values instead of estate tax at future values).  

Depressed valuations are a good opportunity to take advantage of during this time. According to Nat Law Review, “The transfers can be simple outright transfers or leveraged transfers using one or more traditional estate planning devices”. 

Related Article: What is Senior Money Management

Do you need support with your elderly parents? 

We hope that this article was helpful for you as you finish filing your taxes for 2019. Our team is always looking for clever ways to further support our clients with financial advice to improve their quality of life. 

If you are looking for financial advice or support with your taxes, we welcome you to fill out a Contact Form or give our office a call at +1(951)686-3608.

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