The Upside to the Down Economy

Posted by Thomas J. Bogar on December 16, 2009

Take the following advice very seriously.  No better time than the present for estate planning has existed in decades.  Low interest rates, depreciated assets, and estate tax rates and legislation all create an ideal planning opportunity.  However, you had better act now while interest rates remain low and before Congress enacts proposed changes to the estate and gift tax laws next year which will eliminate many planning incentives.

 When things are down, an optimist may tell you to look at things as if the glass is half-full rather than half-empty.  For estate planning, the glass is half-full when considering the planning opportunities that now exist because of  low interest rates, depreciated asset values and current tax rates.  But these opportunities will not be around long because Congress is poised to eliminate many of the tax savings benefits next year. 

 Interest rates for estate and gift tax purposes are at their lowest levels in decades.  For several wealth preservation and succession planning devices designed to pass appreciated assets from an estate at discounted rates, lower interest rates mean more of the asset can pass from the estate at a lower estate tax rate. 

 In addition, the Treasury Department has published a “Green Book” which includes a general explanation of the Administration’s 2010 revenue proposals.  Included are plans to limit IRC 2704 valuation discounts which may consequently effect gift-planning, specifically planning that involves family limited partnerships and business succession planning.  Also included are plans to limit to ten years the term for a Grantor Retained Annuity Trust (GRAT-essentially it is a trust intended to pass portion of appreciating assets, at discounted rates, from a taxable estate over a term of the grantor’s years, while the grantor retains the benefit of the assets during the term of the trust).

 Clients should consider taking advantage of the current market before Congress acts and before interest rates rise. Plans should include shorter term transfers of wealth, particularly those that may pass into a trust for the benefit of the grantor, like a GRAT. 

For more detail and how the proposed legislation may effect you, speak with a qualified estate planning attorney.