With the stock market soaring and diving and the news in 2020 overtaken by Covid-19, a presidential election, and natural disasters nationwide, estate planning may be the furthest thing from your mind. But now may actually be a great time to plan for the future. Here are some things to consider:
The annual gift tax exclusion is $15,000 per person per beneficiary. This means that you are allowed to gift $15,000 per year to each of your children and grandchildren without their owing any gift tax. If you are married, you and your spouse are each allowed to give $15,000 per beneficiary, so you could actually exclude up to $30,000 from gift tax on an annual basis. If any of your investments have depreciated due to the ups and downs of the financial markets in 2020, now could be the perfect time to begin making gifts, because you can transfer the above amounts to your eventual heirs and if the value starts to climb again, the interest that accrues will be theirs to keep free of gift tax.
Additionally, taking the opportunity to update your will, or get one written, if you do not already have one, can always be a good idea. Especially with all of the changes that 2020 has brought, now may be the time to consult with your estate planning attorney about anything new that you would like to address. If your family has grown, or if you have concerns about providing for your children in the future, you might also want to look into disability and life insurance in conjunction with your will.
If you have not already set up a trust as part of your estate plan, 2020 may be the year to change that. Putting your assets into a living trust can be a good way to help your heirs avoid the hassle of probate in the future. In the alternative, if you are getting on in years already, and you have concerns about depreciation of your assets due to the Covid-19 pandemic, you can mitigate asset depreciation by making a gift to an irrevocable trust using the current depressed value of the gifted assets. As the assets increase in value when the economy improves, the growth will not be subject to inclusion in your taxable estate, because growth will occur with the assets in trust rather than in one of your personal accounts or holdings.
If you are married and concerned about your spouse’s future well-being, you might consider a Spousal Lifetime Access Trust (SLAT). This type of irrevocable trust allows your spouse access to the assets in order to pay his or her living expenses, even as you relinquish any control over the trust as the grantor in order to ensure it remains an irrevocable trust. The assets can be used solely by your spouse for his or her own benefit. There are a few special considerations when choosing a SLAT. In the event of a divorce, you cannot withdraw assets from the SLAT. They would continue to be usable only by your spouse. In the event your spouse passes first, you cannot take assets out of his or her SLAT. The assets would need to be spent or distributed as would have benefited your spouse, perhaps for your children. For long-married couples, however, a SLAT often makes sense, and now is the perfect time to transfer assets into a SLAT while their value is low, in order to exclude subsequent appreciation from your taxable estate, and provide for your spouse when you are no longer living.
For more ways to take advantage of estate planning opportunities presented in 2020, our office is here to help. Please feel free to call us at (202) 895-2799 or email cliff@cmCohenLaw.com to schedule an appointment.