Financial Briefs

More Articles  Printer Friendly Version

 

Family Wealth Transfer Opportunities Spawned By Covid

4805 1

(Wednesday, Sept. 2, 2020; 11:00 AM EST) Whether you're a grantor or beneficiary of a taxable estate, current conditions require attention.  Stock market volatility and drops in real estate values in cities, two financial side-effects of the Covid pandemic, create considerable opportunities to transfer family holdings to the next generation.

The minimum interest rate on intrafamily loans, which is set by the IRS, was only 18 basis points that's 18 one-hundredths of 1% --in June 2020. That would allow a grandparent to loan $1 million, $10-million, or more, to a child or grandchild for up to three years and the only money grandpa would be required to count as income is the loan interest of $180 annually. Meanwhile, the loan amount could be in stocks or real estate for three years and any appreciation would not be subject to estate tax.

This is a simplification of the tactic. In real life, it generally involves creating a trust to protect the assets loaned from the possibility of a legal claim, just in case a beneficiary gets divorced, targeted in a lawsuit by business creditors, or in the event someone slips and falls on your property.

With the presidential election and Covid, between now and the end of 2020, the stock market may be volatile. A one-day plunge of 7% occurred earlier in the Covid bear-market recovery. If a big drop like that occurs again between now and the end of 2020, the next big plunge could be an opportune time to consider a loan to children or grandchildren to effectively transfer wealth to the next generation, if you believe stocks will appreciate 1% or more.

Past performance is never a reliable indicator of what your future investment results will be, but it is important to be mindful that the historical annual rate of return on stocks is about 10%. Thus, assuming a return for the next three years of 1% annually one tenth the historical norm is a very conservative expected return and yet it would still make this tactic a profitable investment. And if the stock market returns anything like the historical norm, then your heirs are way ahead, because the gains would not be taxed with the rest of your taxable estate.

For families with real estate holdings in cities where values have declined sharply, the same logic holds true. If you think your real estate will appreciate more than the current applicable federal rate, this is an opportune moment to consider loaning assets within a trust.

The general information above cannot address your individual situation but is intended only to educate families about current tax and financial economic conditions. Legal, tax, or financial advice depends on your specific situation.


Email this article to a friend


Index
Test Your Knowledge Of Urgent Wealth Management Issues
Neither Red Nor Blue, Tax Planning Is All About The Green
Urgent Year-End Tax Planning Moves
Investors Beware: SEC Is Struggling Amid Covid
Food For Thought
Starting A Business? Plan To Succeed
Stock Market Rally Broadened In Past Three Months
3Q 2020 Wealth Management Report
Income, Estate And Gift Tax Hikes Ride On Election Results
2020 Year End Tax Planning For Retirees, Business Owners, And Families
Set Your Financial Priorities Right Now
Poor Bond Outlook May Herald A New Stock Valuation Regime
A Five-Point Covid Diagnostic For Family Wealth Management
Private Wealth's Perfect Storm
Confronting Mortality's Details

This article was written by a professional financial journalist for Blattel & Associates and is not intended as legal or investment advice.

©2020 Advisor Products Inc. All Rights Reserved.

The articles and opinions on this site are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your advisor with regard to your individual situation.
All summaries/prices/quotes/statistics presented here have been obtained from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Past performance is no guarantee of future results.
When you access certain links on the Blattel & Associates website you may leave this website. We do not endorse the content of such websites nor the products, services or other items offered through such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided to the users of the Blattel & Associates website for convenience and informational purposes.
Robert Blattel is a CERTIFIED FINANCIAL PLANNERTM practitioner. The partners of Blattel & Associates are not registered in all states. Please contact us to verify availability in your state. This is not an offer to buy or sell any security.
CFP® and CERTIFIED FINANCIAL PLANNERTM are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Securities and Investment Advisory Services offered through Cutter & Company Brokerage, Inc., 15415 Clayton Road, Ballwin, Missouri 63011 * (636) 537-8770. Member FINRA/SIPC.
Privacy Policy can be read at http://www.cutterco.com/privacypolicy.htm.