Estate, Gift, and Income Tax Planning Opportunities to Consider Today


As the pandemic continues to challenge and change our routines on a daily basis, we must adjust our estate, gift, and income tax planning approach. Below, we take a look at how recent market factors have created tax planning opportunities, and the strategies you should be implementing to capitalize on them.

Depressed Market Value

  1. Use your exemptions for estate, gift, and generation-skipping tax
    • This will automatically expire at the end of 2025, but could be adjusted sooner based on future legislative changes
  2. Utilize gift tax-free wealth transfer using Grantor Retained Annuities Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs)
    • These trusts also benefit from the current low interest rates
  3. Exercise non-qualified stock options
    • If you believe that the stock will rebound, it may make sense to pay the tax now based on the lower stock value.
  4. Convert a retirement account to a Roth IRA
    • Lower value on the date of the conversion means less tax on conversion.
  5. Harvest capital losses
    • This will offset other current year gains or carry the losses forward into future years when the market recovers.

Declining Interest Rates

  1. Intra-family loans
    • If you already have these loans, refinance them at a lower rate. May 2020 Applicable Federal Rates range from 0.25% to 1.15%
    • If you don’t have these loans, consider making a loan to the younger generation to allow them to invest the loan proceeds in a vehicle which generates investment returns greater than the interest due on the loan; by using this approach you have effectively gifted the difference between the AFR and investment return without any gift tax impact
  2. Selling assets to grantor trusts
    • This will allow you to take advantage of the low interest rate and low value
  3. Refinancing or using lines of credit
    • Lower rates equals less interest, more principal, and more flexibility

Cares Act Implications

As a reminder, the CARES Act provided changes to the tax law that may be beneficial to certain taxpayers.

Why Act Now?

You should be prepared for an increase in income and wealth transfer taxes in the future, and identify what steps you can take today to stabilize your tax plans in the face of that possibility.

Please don’t hesitate to reach out to your Wolf & Company advisor to discuss any questions you may have regarding your unique estate, gift, and income tax planning challenges.