First, and most important, we at Pugh CPAs are thinking of all our clients and friends and hoping everyone is safe and healthy at this challenging time.
We have heard the following statement frequently of late: “Never let a crisis go to waste.” An estate planner’s version of this is: “Never let a reduction in value of assets go to waste.”
As we write this alert, the stock market’s major indices have lost quite a bit of their value over the last several weeks. While we don’t pretend to be psychics, it is possible that closely-held businesses, commercial real estate, and other assets have declined or may possibly decline in value – temporarily (we hope!).
For those of you who will be subject to federal estate tax, this is an opportunity to consider transferring these (temporarily) reduced-value assets out of your name in a tax-advantaged fashion. With proper planning, the post transfer growth in those assets potentially can escape estate, gift, and generation-skipping transfer (GST) taxes. Since assets are worth less at the moment because of COVID-19 situation, post-transfer growth will occur even if asset values simply return to pre-virus levels. Any additional longer-term growth will also avoid transfer taxes.
Currently, the lifetime estate and gift exemption is at an all-time high of $11.58 million per individual or $23.16 million for a married couple. Now is an excellent time to consider using this gift tax-free ability to transfer assets. There are many ways to transfer assets – outright gifts, gifts to trusts, sales of assets to certain types of trusts, and more. Each of these techniques has significant tax and nontax aspects to consider.
With a presidential election in the months ahead, there is a lot of uncertainty. Exemption levels may be lowered, estate and gift tax rates may go up and valuation discounts may change or be eliminated depending on the political party chosen to be at the helm. If you are considering making gifts or a minority interest in your business, you should consider having a valuation performed today to support the transfer of wealth to the next generation and maximize the transaction benefits.