Time is Right for These Wealth-Building Strategies

2:33 pm Estate Planning

money target 150x150 Time is Right for These Wealth Building StrategiesThere are two factors that are currently affecting many estate planning strategies that also favor wealthy families:  low interest rates and the federal gift tax exemption of $5.25 million.

Here are three suggestions on taking advantage of the current economic climate:

Discounts on privately held company stock:  The IRS generally allows a 30-35 percent discount on stock in privately held companies that you give away.  However, when the market is volatile, private stockowners can sometimes obtain larger discounts for their holdings – sometimes as much as 65 percent.

GRATs:  Grantor-retained annuity trusts (GRATs) work best when interest rates are low, so putting assets in a GRAT now is practically a “no-lose situation” for estate planning.  When the asset appreciates, a GRAT allows you to transfer most of the upside to your children, or to a trust for their benefit, with no gift tax.

One caveat is that assets placed in a GRAT have to appreciate more than the hurdle rate calculated by the IRS – but at the current hurdle rate of 1.2 percent, it shouldn’t be hard to beat.  And, if the assets in the GRAT continue to depreciate, they can either go back to the original owner or the GRAT can be re-set by purchasing back the assets and transferring them to a new GRAT.

Family loans:  Families can take advantage of low interest rates by making an intrafamily loan to fund an investment, and the children would get anticipated appreciation on the assets after repaying the loan.

Contact our Orange County law firm for additional estate planning strategies.

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