Estate Planning Documents

Our attorneys have been actively working to complete existing estate planning projects, but we are also available to take on new estate planning matters. In addition to those who have contacted our office because of concerns that the COVID-19 coronavirus raises, our attorneys have been contacted by clients who want to make changes in their estate plans because of the significant downturn in financial markets. These clients are worried that because of the drop in their net worth, their existing estate plans no longer accomplish their goals. For example, clients seeking to reduce or eliminate specific bequests to ensure that their children receive a sufficient benefit from their estate plan, or to adjust formula gifts to ensure that their spouses receive a sufficient benefit from their estate plan.

Estate Planning Opportunities

Further, the combination of the downturn in financial markets and the dramatic reduction in interest rates present planning opportunities. For 2020, the unified federal estate, gift and generation-skipping transfer tax exemption is $11.58 million, an increase of $180,000 from 2019.

— The minimum interest rate required to be charged for loans in order to avoid a gift (known as the applicable federal rate) has fallen to rates not seen for many years. For example, the April 2020 rate for loans of three years or less is only 0.91% and for loans of more than three years but not more than nine years is incredibly only 0.99%. (The corresponding rates in March 2020 were 1.50% and 1.53%, respectively.) Thus, April 2020 is an ideal time to make loans to family members or trusts for their benefit or to refinance existing loans that have higher interest rates.

— A grantor retained annuity trust or GRAT is a technique that allows the grantor to transfer substantial value to a trust with little (or no) immediate gift tax consequences by retaining the irrevocable right to receive a fixed amount payable at least annually for a term of years (the “Annuity Payment” or “Retained Interest”). The estate tax benefit of the GRAT is that any appreciation above the “Section 7520 Rate” on the assets transferred to the GRAT, passes to the remainder beneficiaries free of additional gift or estate taxes. The Section 7520 rate for April 2020 is merely 1.2%, meaning that, in order for the GRAT technique to be successful, the earnings on the GRAT assets must only exceed 1.2%.