Got Wealth? Time to Transfer It!

Low interest rates used by the IRS to value interests in property, coupled with precipitous declines in asset values present a unique opportunity for families to transfer their wealth to their heirs on a tax efficient basis.  For example:

  • Charitably inclined families can implement a Charitable Lead Annuity Trust (“CLAT’s”), in which your designateed charity receives  a stream of payments for a predetermined period of years, while you receive a charitable income tax deduction, before your children or heirs receive the remaining trust property transfer tax free.  This remainder can be substantial, and studies have shown this technique to have favorable outcomes 92% of the time when interest rates are low, as they are now.
  • Long term sales to Grantor Trusts (benefitting your children and grandchildren) offer a way to use the current 2.8% IRS rate on interest due to the selling parent, over ten or twenty years.  Over that time, the property sold (at a discounted value) is VERY likely to appreciate and/or generate income at a considerably higher rate, resulting in wonderful wealth transfer leverage.
  • Reverse Freeze Partnerships are a new concept turning old techniques on their head to our advantage, allowing older generation donors to retain “common” growth interests, and Grantor Trusts for the heirs to acquire “preferred” interests, paying substantial dividends which over time transfer all of the wealth with wonderful income and gift tax benefits.
  • Grantor Retained Annuity Trusts, or “GRAT’s”, require the payment of the gifted property back to the Grantor, including a very modest amount of interest, which returned property is promptly commited to another GRAT.  Any appreciation in the property exceeding the current rate (around 2%) ends up in the hands of your heirs, transfer tax free.

Of course, these of times of great uncertainty and anxiety which take an emotional toll-making gifting and planning hard to do right now.  But just imagine how smart you will look if you listen to the Will Doctor, and sell your assets to your heirs for an I.O.U. paying 2.8%-fifteen or twenty years from now!

Remember: Congress is thinking of taking away some of these tools which we now use so effectively, including GRATS and valuation discounts on most gifted property.  We are not presently concerned that any such legislation will be grandfathered, so if you act quickly, your heirs may reap large rewards.

Finally: It is still possible that the curent law calling for repeal of estate taxes in 2010 will be left intact-and many older wills and trusts dont make sense without the tax system for which they were designed-so please see your estate planning attorney or the Will Doctor for a check up.

Posted in Planning Opportunities, Status of Tax Legislation, WillPlan Blog.

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