Estate planning can get complicated fast because there are so many options, and because there are so many options, appropriate estate planning is highly individualized. After all, everyone has different wants, needs and income levels. This is why one-size-fits-all prepackaged estate planning tools are often inappropriate for most people. But, are there any general end-of-year estate planning tips?
The answer
Yes! While many do not think of this time as tax season, the end of the year also means thinking about maximizing next year’s taxes. And, one silver lining to these times is that we are living in a historic low interest environment. This opens up options.
Grantor Retained Annuity Trust
One useful estate planning tool is a Grantor Retained Annuity Trust. GRATs minimize gift taxe on large financial transfers to family members. With a GRAT, one transfers assets to timed irrevocable trust, meaning that the irrevocable trust only exists for a set amount of time. When the trust expires, the family member beneficiary gets all of the assets in the trust. And, since we are in a historic low interest environment, these assets can likely pass gift-tax free as the amount passing will likely be undervalued.
Intra-Family Loan
Another end-of-year wealth transfer tool is an intra-family loan. Again, since interest rates are so low, the loan is essentially free as interest rates are near zero, and yet, the loan not considered a gift. These can be especially useful for those starting a business because they are much cheaper and more flexible than a traditional commercial loan.
Gifting business interests
When gifting business interests, the value is calculated on present value. For most businesses, right now, business values are depressed. This means that if one gifts shares in a business with a depressed gift valuation now, they can avoid taxes later on the future appreciation.
For Millville, New Jersey, residents, these are only three estate planning options among many, many more. This is why it is so important to speak with an estate planning attorney to discuss each option to craft an individualized plan.