Estate Planning Opportunities

24th March / 2020
Estate Planning Opportunities

It feels as if COVID-19 has impacted every aspect of our lives. That impact can leave us feeling powerless and uncertain as to what, if anything, we can be doing. One of the fundamental principles that guides us here at TFO is to focus on the things we can control. In light of that focus, below are several estate planning ideas to consider during this time.

Refinance Intra-Family Loans

Loans between family members often use the Applicable Federal Rate (“AFR”) to set the interest rate. With declining interest rates across the board, as of April 1st, 2020, the short-term AFR (loans maturing in less than 3 years) will drop to 0.91%, the mid-term AFR (loans maturing in 3 to 9 years) will drop to 0.99%, and the long-term AFR (loans maturing in more than 9 years) will drop to 1.44%. Families with loans between family members and/or loans to irrevocable trusts should consider consolidating and refinancing loans to lock in April’s historically low rates.

Transfer Tax Planning with Lower Value

  • Gifts Gifted assets are generally removed from your estate for estate tax purposes. When making such gifts, you are required to use a portion of your lifetime gift/estate tax exemption (currently $11.58 million) equal to the fair market value of the gift.  Given current market conditions, the fair market value of gifted assets may be extremely depressed and/or discounted, requiring less of your lifetime gift tax exemption to cover the gift.
  • Sales/LoansPlanning techniques involving loan or sale transactions are effective because the loaned or sold assets only need to appreciate at a rate greater than the interest rate charged.  In such transactions, any growth above the interest rate charged passes transfer tax free.  The combination of depressed values and low interest rates create a favorable environment for this type of planning.

Roth IRA Rollovers

When converting a traditional IRA into a Roth IRA, the cost is paying taxes now on the current value of the IRA. Generally, it’s best to make these conversions when the market is down.

Review Your Powers of Attorney

  • Durable Power of Attorney for Health Care and Living Will This document appoints an agent to make health care decisions for you in the event you are physically incapacitated, and cannot make these decisions for yourself. Additionally, it expresses your intent regarding what actions should or should not be taken if you have an incurable or terminal condition (including end-of-life decisions).
  • Durable Power of Attorney for Finances This document enables you to plan for periods of lifetime incapacity so that assets may be managed, and legal decisions may be made – all without the potentially significant cost, delay, and expense of a guardianship or conservator proceeding.



Important Disclosures:

The estate planning and tax information provided herein is general in nature. It is provided for informational purposes only and should not be construed as legal, tax, or investment advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. TFO Phoenix, Inc. is not engaged in the practice of law.

Information was obtained and collected from a variety of public resources. We believe this information provided here is reliable, but do not warrant its accuracy or completeness. Laws may change pursuant to the administration’s legislative agenda.

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