Estate Planning: 6 Things to Review Due to COVID-19

When was the last time you checked on your estate plan?Estate Planning: 6 Things to Review Due to COVID-19

As we navigate through these turbulent times, it may have you thinking about additions you would like to add or perhaps items you may want to remove from your estate plan. 

When checking on your estate plan, consider these six things:

  1. Gifting
  2. Grantor Retained Annuity Trusts (GRAT)
  3. Swaps
  4. Promissory Notes
  5. Charitable Lead Annuity Trust
  6. IRA Conversions

Learn more about each of these things in the article below. 

1. Gifting

Have you thought about gifting your assets during this time? The pandemic has made it an excellent time to start gifting because the value of the assets you decide to give away will be depressed. This gives you the opportunity to give away more without paying any gift tax.  When the market recovers, the increase in value will be owned by your donee gift tax-free.

Related Article: 4 Benefits of Gifting During the Pandemic

2. Grantor Retained Annuity Trusts (GRAT)

A GRAT gives a grantor the opportunity to place assets into a trust for a certain period of time and receive an annuity payment during that time frame.  According to The National Law Review, “at the end of the annuity period, any appreciation on the trust assets in excess of the monthly Internal Revenue Code Section 7520 rate will pass to the trust’s ultimate beneficiaries transfer tax-free.”

3. Swaps

Have you tried a swap? By swapping, it takes low basis assets out of the trust and replaces them with assets that have a higher basis. The lower basis assets reacquired from the trust will receive a basis adjustment upon the grantor’s death (via the inclusion of those assets in the grantor’s estate). If you are interested in this, check out this article on The Tax Advisors that explains swap powers.

4. Promissory Notes

A promissory note gives you the opportunity to provide a loan to a child or other beneficiary, or to restructure loans that were made in the past that are still outstanding. Currently, the interest rate set forth by the IRS is very low, which is why you want to take advantage of it now while you can. 

5. Charitable Lead Annuity Trust

The charitable lead annuity trust is similar to the GRAT mentioned above, but it gives you the option to give back. The charitable lead annuity trust pays a fixed dollar amount to charity for up to 20 years. Just like a GRAT, at the end of the term, any appreciation on the trust assets in excess of the monthly Internal Revenue Code Section 7520 rate will pass to the trust’s ultimate beneficiaries transfer tax-free. The annuity amount to charity also can be calculated so that the present value of the gift for gift tax purposes can be very low.

6. IRA Conversions

In addition to contributing to an IRA, you can also convert your existing traditional IRAs to a Roth IRA. With a Roth IRA, it allows future earnings to remain tax-free, as well as all withdrawals by you or by your beneficiaries after your death.  However, you must pay income tax now on the value of the traditional IRAs.

While the value of your IRAs may be low now, this is a good time to consider a conversion to a Roth IRA.  You would pay current income tax on the temporarily lower value and then all future earnings and appreciation would be exempt from income taxation.

Related Article: How Marcia L. Campbell, CPA Can Help You Retire by the End of 2020

Do you need support?

Our team offers a wide range of support services to help you make the right decision for your personal situation. Together we will improve your quality of life. If you need our help, please contact us by filling out a Contact Form or giving our office a call at +1(951)686-3608. 

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