Recent events have had a significant effect on the viability and urgency of certain estate planning strategies. The economic havoc wreaked by the COVID-19 crisis along with the Federal Reserve’s aggressive interest rate cuts have made certain estate planning tactics extremely attractive. These include grantor retained annuity trusts (GRATs) and sales to intentionally-defective grantor trusts (IDGTs).
At the same time, with Bernie Sanders no longer in the primaries and the more moderate candidate Joe Biden becoming the presumptive nominee, the odds of a Democrat winning the 2020 presidential election have increased. Part of Biden’s tax plan is to repeal the tax cuts that were put in place in 2018. If successful, that would accelerate by as many as five years the halving of the estate and gift tax exemption from its current level of $11.58 million to approximately $5.8 million in today’s dollars. For married couples, the exemption reduction would be from $23.16 million to about $11.6 million.
Even for those wealthy enough to be able to fund this level of gifting, there are concerns about potentially needing the money themselves someday and the effect that the gifts may have on the development of their children’s and grandchildren’s work ethic. Strategies that address these concerns include gifts to spousal lifetime access trusts (SLATs), gifts using illiquid assets, and gifts to quiet trusts.