Two factors make this year an opportune time to consider the succession and wealth planning. First, the federal inheritance and gift tax exemption reached an all-time high of $ 11,580,000 in 2020, or $ 23,160,000 for couples if portability is chosen in a federal income tax return. estates. Portability allows the unused estate of a married deceased person and the gift tax exemption to pass to the surviving spouse. The tax rate is 40%.

That exemption amount expires at the end of 2025, but if Democrats win big in November, there’s a good chance the exemption will fall sooner, possibly as early as 2021, as Joe Biden called for it to be reduced. He didn’t give an exact figure, but we believe the exemption could return to pre-2018 levels of around $ 5 million ($ 10 million for couples), with adjustments based on inflation.

Another reason for estate planning is the historically low IRS interest rates, according to Pamela Lucina, chief fiduciary officer and head of fiduciary practice and advice for Northern Trust Wealth Management. Low rates make intra-family loans and some estate freeze and gift strategies invaluable planning tools. She advises wealthy people to start planning now by looking at their goals and determining how much of their wealth they are willing to part with.

Estate and Wealth Advisors suggest several strategies, which we discuss here, to take advantage of the currently significant exemption from inheritance and gift taxes as well as low interest rates.

Give pure and simple gifts. You can give up to $ 15,000 to every child, grandchild or anyone else in 2020 without having to file a tax return, pay gift tax, or use your exemption. The beneficiary is also not taxed on the amount received. For example, if you are married and have four children and six grandchildren, you and your spouse can each give up to $ 15,000 in 2020 to each of your 10 parents without tax consequences on donations. That’s $ 300,000 in tax-free gifts.

Donations made in 2020 that exceed the limit of $ 15,000 per person will require the donor to file a donation tax return using IRS Form 709, but no gift tax will be due in 2020, unless your total lifetime donation exceeds $ 11,580,000. If you are thinking of giving a big gift for a family member, now might be the time to do it.

Consider an annuity trust kept by the settlor. A FREE freezes the value of assets while transferring any added value to the next generation with little or no inheritance or gift tax. An individual transfers investments or other assets into an irrevocable, fixed-term trust, while retaining the right to receive an annual stream of income plus interest based on the applicable federal rate from the IRS, which was 0, 4% in September. At the end of the term, the assets are distributed to the beneficiaries of the trust, usually the children of the settlors.

The actuarial value of the assets remaining in the FREE is a taxable gift upfront, but the low interest rate lowers the value of those assets, reducing the amount of the gift. If the assets appreciate at a rate above the federal rate of 0.4%, your heirs will receive the value of the additional growth tax-free when the trust expires. Lucina advises people who are considering a FREE to start working with an advisor now to set up the trust, but can wait to fund it later.

Another option is family loans. The interest rate on these loans must be equal to or greater than the interest rate set by the IRS for the month in which the loan is made, which is 1% for long-term loans in September. The IRS pays special attention to loans made between family members and, during an audit, may seek to reclassify certain disguised gift loans subject to gift tax. Factors that can help prove that the money was a loan include a written debt obligation with interest, a fixed repayment schedule and security, and a reasonable expectation that the amount will be repaid.


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