The Current Economy Presents Opportunities in Estate Planning

The current economic environment presents opportunities for high-net-worth individuals to maximize the benefits of estate planning to leverage tax exemptions and insulate your assets.

Why is now a good time for estate planning?

  1. As you may know, there is both a Massachusetts and federal estate tax. The federal tax is a 40% tax on the fair market value of assets in excess of $11.58 million. The federal exemption is scheduled to return to approximately $6 million at the end of 2025; however, this may be impacted by any changes in the administration. What we can plan for is that the taxpayer friendly $11.58 million exemption will not last. Additionally, 12 states and Washington D.C. impose an estate tax with exemptions ranging from $1 million in Massachusetts and Oregon to $5.85 million in New York. The Massachusetts tax rate is a variable rate ranging from .8% to 16%. Now is the time to take advantage of increased estate tax exemptions.
  2. The current fair market value of your assets and current interest rates are also important considerations. Given the current economic environment, both are potentially depressed making estate planning now more attractive.

How can you maximize estate tax exemptions, market values, and interest rates while maintaining control of your assets?

In initial consultations with clients regarding estate planning, relinquishing control of assets is a common concern and objection. AAFCPAs advises clients on strategies to overcome these concerns. For reference, we have provided two examples below:

Spousal Lifetime Access Trust (SLAT)

AAFCPAs advises married couples to consider the benefits of SLATs, which are irrevocable trusts that each spouse creates for the benefit of the other. The spouses make gifts of assets to each of the trusts using their respective estate tax exemptions, which removes those assets from their estates. Additionally, the future appreciation in these assets is also removed from their taxable estates. They each still have access to the assets as beneficiaries of the trusts.

Intentionally Defective Grantor Trust (IDGT)

AAFCPAs advises clients, where appropriate, to take advantage of the low interest rates by making low interest loans to family members and trusts that are not includable in their estates.  The technique is called an IDGT.  For example, James creates an irrevocable IDGT for the benefit of his children and grandchildren.  This trust is not includable in his estate.  James sells his business to the IDGT in exchange for a promissory note for the current fair market value of the business. The IDGT is considered a “grantor” trust for income tax purposes, i.e. for income tax purposes, the IDGT and James are considered one and the same. James’ sale of his business to the IDGT is not subject to income tax. The current rate on such a note may be as low as .6%.  While the value of the promissory note could be subject to the estate tax upon James’ death, the value of the business will not. If the business grows at greater than .6%, James profits.  In addition, James may still pull money out of the business as needed by having the IDGT make payments on the promissory note.  Each such payment reduces the value of the promissory note for estate tax purposes.  James has exchanged an appreciating asset (his business) for a depreciating asset (the promissory note).

SLATs and IDGTs are examples of two strategies available to take advantage of the current economic environment for reducing clients’ estate taxes. AAFCPAs advises clients on these as well as other strategies for reducing or deferring income tax on the sale of highly appreciated assets. Clients are encouraged to contact your AAFCPAs Tax Partner or AAFCPAs Wealth Management Wealth Advisor to discuss your goals and options available to you.

“’Tis impossible to be sure of any thing but Death and Taxes,” – The Cobbler of Preston by Christopher Bullock

Our current health crisis is a stark reminder that life is fragile and unpredictable.

Estate planning provides peace of mind beyond minimizing tax. It is about being proactive in protecting your family, identifying guardians of your children, preparing for disability or long-term care, business succession, and freedom from worry and anxiety.

If you have questions, please contact Joshua England, JD, LLM at 774.512.4109,; or your AAFCPAs Wealth Advisor.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the AAFCPAs Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by AAFCPAs Wealth Management, LLC or performance returns of any AAFCPAs Wealth Management, LLC client. The views reflected in our commentaries are subject to change at any time without notice. Nothing on this page constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. AAFCPAs Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

About the Author

Joshua England, Tax Attorney
Josh is a tax strategist with extensive expertise advising high-net-worth individuals, nonprofits, and business owners and investors on effective strategies to ensure tax efficiency, asset protection, well-executed succession plans, and wealth preservation. He has been practicing law since 2000 and focuses his practice on the areas of wealth transfer planning, fiduciary and individual taxation, business structuring to maximize tax efficiency, and advising tax-exempt organizations, foundations and charitable donors.