Paul L. Caron

Friday, April 24, 2020

COVID-19 Chaos Creates Opening For Millionaires To Pass Wealth To Their Children At Huge Tax Savings

Bloomberg, Virus Chaos Creates Opening for Millionaires to Slash Tax Bills:

CoronavirusMarket uncertainty caused by the coronavirus pandemic has created an opportunity for the very rich to pass more wealth to their children free, or virtually free, of tax.

Many people are in financial distress because the pandemic has forced businesses to temporarily shutter their operations, leading to furloughs and layoffs across the country. But those with enough wealth to shield themselves from any real hardship may find that it is an ideal time to deploy new tax-planning strategies.

Depressed asset values, combined with historically low interest rates, unprecedented estate and gift tax exemptions, and a favorable political climate, are making some tools more attractive than ever—especially those that allow parents to shift appreciable assets that have temporarily lost value to their children in a way that minimizes future estate and gift tax, according to estate tax attorneys. ...

Transferring depressed stocks, business interests, and real estate holdings to family members now could help individuals avoid estate and gift tax liabilities down the road, said Michael Rudegeair, tax director at Anchin, Block & Anchin LLP and incoming chair of an American Institute of Certified Public Accountants estate planning panel. ...

There are a variety of tools wealthy individuals can consider, planners said. One that may be especially attractive given the current mix of factors is the grantor retained annuity trust, or GRAT. ...

Sales to intentionally defective grantor trusts are attractive right now for similar reasons, several estate planners said. Intentionally defective grantor trusts contain a purposeful flaw that allows a person to transfer assets into the trust and continue to pay income taxes on the trust’s earnings, but locks in the assets’ initial value for estate tax purposes so any gain escapes the 40% tax at death.

Wealthy individuals may also want to think about intra-family loans because of the low interest rates. Gifting outright—without the extra hassle of a vehicle like a GRAT—is another appealing option because lower asset values mean parents have to use less of their gift and estate tax exemption.

(Hat Tip: Ted Seto)

For complete TaxProf Blog coverage of the coronavirus, see here.

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MM: Haste makes for mistakes, so I ask you to forgive me. We still think differently but in no way were you lying. :)

Posted by: Gerald Scorse | May 1, 2020 7:55:57 AM

Gerald: "(aka lies)"

So the virus didn't come from Wuhan, and the PRC didn't allow it to spread, and then lie about it and cover it up?

Wow, well done. If you hate the rich so much, why don't you move to China, then? You're already spreading the PRC's propaganda, and you're not even getting paid of it.

Posted by: MM | Apr 29, 2020 8:38:08 PM

MM: "Caused by a socialist regime..." You've surpassed yourself, as Trump does daily, for untruthfulness (aka lies).

Posted by: Gerald Scorse | Apr 28, 2020 8:26:39 AM

Gerald: "Even in the worst crisis of our times..."

Caused by a socialist regime, which lied about it, and furthered by state action to shut down the private economy here in the U.S.

You guys usually BLAME the wealthy for causing recessions. It's ironic to see these desparate attempts to blame them for anything, instead of the root causes of "the worst crisis of our times"...

Posted by: MM | Apr 26, 2020 3:16:54 PM

"Temporarily depressed"

The real trick here is to be sure that the asset will not become worthless. Shareholders are usually wiped out in a bankruptcy.

Posted by: AMTbuff | Apr 24, 2020 6:11:48 AM

The unending number of ways that the coronavirus stands to benefit the rich continues to astonish me. Even in the worst crisis of our times, the best-off stand at the front of the line--starting, of course, with the bailouts that Congress has passed.

Probably, of course, I shouldn't be astonished; probably I'm simply naive.

Posted by: Gerald Scorse | Apr 24, 2020 5:23:24 AM