According to estate planner Maurice R. Kassimir, Esq., the present moment has provided a “perfect storm” for wealthy families to meet with their estate planners and implement some wealth transfer strategies. In a November webinar, Mr. Kassimir pointed to three factors that make these times unique:

• The prospect of higher taxes on “the rich.” The scheduled 2026 drop in the federal transfer tax exemption remains in place. Although few now predict that the drop will be accelerated, even fewer predict that the current exemption levels will be made permanent. Thus, there is every incentive to make large gifts soon to “lock in” the higher amounts, $11.7 million per person in 2021. What’s more, the yawning federal budget deficits are likely to be addressed with higher taxes, with most of the burden targeted to the wealthy.

• Covid-19 has caused valuation discounts to soar. Economic pain and uncertainty reduces the value of many assets, notably small businesses and especially real estate, even though publicly traded stocks seem to be doing well. Mr. Kassimir observed that in New York City, the value of some commercial real estate is down as much as 75 percent as tenants are no longer able to pay their rents. With such large discounts in place, the $11.7 million lifetime exemption from gift tax will shelter far more in assets than would have been true one year ago. 
• Historic low interest rates. The low interest rates provided by the IRS tables makes this an exceptionally good time for many estate planning strategies, such as grantor-retained-annuity trusts (GRATs). The November 2020 7520 mid-term rate was just 0.47 percent.

Implicit in these examples is an assumption that most asset values will return to normal after a vaccine brings the pandemic to an end. The other problem planners may face is that in times of severe economic uncertainty, even those with $20 million in assets may not feel rich enough to part with a substantial portion of them simply to save taxes for their heirs.

(December 2020)

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