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Your guide to estate planning during a pandemic

A woman with brown hair reading a book as cash falls from above

Billionaire Warren Buffet once famously said that investors should be “fearful when others are greedy, and greedy when others are fearful.”

With COVID-19 still spreading across the nation, this is certainly a time of fear for many.

In this environment, people have the opportunity to capitalize on their “greed” - the good kind.

Right now conditions are such that wealth transfers, gifts, intrafamily loans, and other forms of estate planning can be accomplished at lower financial interest and tax rates than normal.

Asset values have fallen to reflect the new financial reality brought on by the pandemic. Interest rates have been decreased to encourage borrowing.

Meanwhile, tax reform in 2017 slashed taxes for the transfer of many large assets and monetary gifts.

Estate planning during COVID-19

If you’ve been putting off planning for the future, now is the time to contact a detail-oriented and knowledgeable estate planning lawyer. In central and southern Arizona, The Law Firm of Brown & Jensen has been helping Arizonans for years to create strategic, successful financial plans that allow them, their families, children, children’s children, and so on to live comfortably.

Here are just a few shrewd estate planning options you can take advantage of as COVID-19’s climate of fear continues.

  • Annual Gift Exclusion: In any given year, you can gift up to $15,000 tax-free to an individual. Right now, while valuations are temporarily depressed, might be a good time to make that $15,000 gift in assets instead of money. Once the pandemic passes and values return to normal, that same tax-free $15,000 gift will be worth more.
  • Temporarily High Estate Exemption Amount: As part of tax reform approved in 2017, a person can pass up to $11.58 million to other individuals, tax-free, during his or her lifetime. The significant tax-break is set to expire in 2025. After that, the exemption amount will drop to somewhere between $6 million and $7 million.
  • Establish Trusts: Trusts are financial arrangements in which an impartial third party holds onto assets set aside by one person for the benefit of another person or entity. Setting up a trust now is another way to take advantage of low asset values.

There are many kinds of trusts including charitable lead annuities (CLT), Grantor retained annuities (GRAT), and Spousal lifetime access trusts (SLAT).

  • A CLT provides regular donations to a nonprofit organization over a period of years. Once that term is up, the remaining interest is determined using special “7520 rates.” That money can be distributed to designated beneficiaries without having to pay a lofty gift tax.
  • A GRAT is an irrevocable trust that holds assets expected to appreciate over time. The person who establishes the trust - the “grantor” - receives an annuity from the arrangement. At the end of the trust’s term just about any remaining funds that grew over the 7250 rates can be passed on to beneficiaries tax-free.
  • A SLAT is another irrevocable trust. This one benefits a grantor’s spouse and children by placing property into a trust at the current pandemic-depressed value. Spouses can access the assets if necessary.

Time to act is limited

Many people are being advised to take advantage of the temporarily improved estate planning conditions sooner rather than later.

As the COVID-19 vaccine is administered to more and more people, the economy will continue to reopen and strengthen - a scenario that will likely increase asset values and interest rates.

There is also the possibility that the 2017 tax reform passed under the Trump administration could be reduced by the current Biden administration.

To best capitalize on this novel time and secure your family’s future, get in touch with an experienced estate planning attorney now. A good, attentive lawyer can help you make the best financial decisions for your situation.

The Law Firm of Brown & Jensen has a team ready to help you create a custom pathway to achieving your financial goals.

Our law firm provides free legal consultations on estate planning as well as other legal issues including tax and business law. We have offices across southern and central Arizona in Mesa, Tucson, Scottsdale, Chandler, Goodyear, Peoria, Show Low, and Payson. Contact us today.

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