YOUR MONEY: Year-end estate planning tax strategies

There is no one-size-fits-all tax planning strategy, especially this year with so many new factors and uncertainties. The current pandemic has had a great impact on all of us as it has brought mortality to the forefront of our minds and prompted a lot of people to review estate planning strategies.

Because of the current low interest rate environment, now is a good time to consider the techniques available to transfer wealth to other family members at substantially reduced gift tax cost.

A Grantor Retained Annuity Trust, or GRAT, is one estate planning tool used to minimize taxes on large financial gifts to family members. Using this method, property can be transferred to an irrevocable trust for a specific period of time in exchange for annual annuity payments, and the beneficiary receives the remaining assets at the end of the trust term. When interest rates are low, it is more likely that the amount passing to the beneficiary will be greater than the calculated amount of the gift, allowing them to receive assets gift-tax free.

Another technique to consider is an intra-family loan. These are often loans given by parents to their children or grandchildren usually using the Applicable Federal Rate – the lowest interest rate that can be charged on a loan for it not to be considered a gift. Intra-family loans provide another way, aside from an outright gift, for families to transfer growth on their wealth. This can be particularly useful for someone in your family who is starting or growing a business since repayment terms can be more flexible than those of a commercial loan.

Many privately-owned businesses hit hard by the pandemic now have depressed values that are going to require a long recovery period. This difficult time is also an opportune time to make a gift of the business to a family member at a lower gift valuation, removing any future appreciation from the estate.

These are just a few ideas to help in your estate planning for the new year. For assistance creating or updating your estate plan, contact us at Wilson and Wilson Estate Planning and Elder Law, LLC at 708 482 7090 for our main office in LaGrange, Illinois or at 847 656 8958 for our Northbrook, Illinois office.