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Planning Opportunities in a Down Market

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A drop in the market provides plenty of planning opportunities to consider.[1]

  • Make gifts to irrevocable trusts using currently depressed assets. An irrevocable trust can be structured as a Spousal Lifetime Access Trust (SLAT) that allows your spouse to control and receive income from the assets in the trust.
  • For those who already have created SLATs and used their full gift tax exemption, sell assets for current (low) fair market value to the trust in return for a promissory note using current low applicable federal rates.
  • If you have grantor trusts in place (e.g. Intentionally Defective Grantor Trusts), consider swapping assets that have a currently depressed value for assets inside the trust that may be holding their values. This allows the recovery in the currently depressed assets to occur outside of your estate.
  • Create and fund Grantor Retained Annuity Trusts (GRATs).  GRATs work best as estate planning vehicles when interest rates are low and with assets that are likely to appreciate significantly over time. These trusts rely on the appreciation on the assets beating the growth the IRS presumes based on current applicable federal rates.
  • Consider a Roth conversion for IRA assets to allow the market recovery to take place in a tax-free account. Roth IRAs are also a great way to pass on tax-free wealth to heirs.
  • Increase IRA/Roth IRA/401(k) contributions to buy low and allow for tax-deferred or tax-free growth in market recovery. Consider adding a cash balance plan to allow greater pre-tax contributions and accompanying tax-deferred growth.
  • Tax loss harvest to generate capital losses that can be used to offset capital gains now and in the future.
  • Review mortgage and loan interest rates to see if refinancing would benefit you.

 

The HKFS planning platform models many what-if scenarios and options that may benefit you and your heirs. Contact your HKFS financial planning consultant with any questions you may have.

 

Sources

[1] “COVID-19 and Estate Planning: Strategies to Consider Now,” Samantha L. Heaton, Winthrop and Weinstine, March 30, 2020; https://www.winthrop.com/bold-perspectives/covid-19-and-estate-planning-strategies-to-consider-now/

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