Estate & Gift Opportunities in a Crisis


The present Coronavirus crisis has undoubtedly wreaked havoc on all our lives, impacting both our personal and professional worlds. The disruption has cascaded through pretty much all areas of the financial world leaving very few businesses escaping unscathed.  Uncertainty has always been the enemy of financial stability and unfortunately, foundational questions about how long the recovery will take and what the future will look like post-crisis do not have clear answers. Understandably, this is a cause of worry and concern for many.

We remain ever-conscious of the devastating impact COVID-19 has had on families and our community, but if we allow ourselves to focus on a few areas of our lives that we can control, this crisis has created some estate and financial planning opportunities worth evaluating.

Planning Opportunity #1: Explore using your unified credit now

While not a new opportunity, the unified credit against estate and gift tax remains a valuable estate reduction tool that will likely be diminished in the not too distant future. In simple terms, the unified credit is the amount that an individual can pass to others during life or at death without generating any estate or gift tax and is currently $11,580,000 per person.

Under the Tax Cuts and Jobs Act (“TCJA”) passed in 2017, on January 1, 2026 (unless extended) the unified credit will automatically be reduced to approximately 50% of what it is today (with inflation adjustments). It is possible that due to the cost of the Coronavirus bailout and/or if there is a change in the political leadership after the presidential election in November, the timetable for reduction in the unified credit may be accelerated. What’s more, the available credit could possibly be reduced by even more than 50%. This is all to say that if there is a concern about the impact of the future estate tax in your estate, it makes sense to review options for utilizing your unified credit and consider making gifts today as opposed to waiting. Perhaps, at the very least, it may make sense for a married couple to utilize at least one available unified credit for a current gift. Finally, leveraging a unified credit today with advanced planning discount techniques and potentially reduced asset values as discussed below may provide a very valuable “once in a lifetime” opportunity to reduce future estate tax.

Planning Opportunity #2: Take advantage of reduced valuations

For closely-held business owners who wish to pass their business to the next generation, there is an opportunity today to gift all or a portion of your business today at a value substantially lower than what it would have been pre-crisis. The chaos created in the financial marketplace will likely have a negative impact, at least temporarily, on most businesses and their resulting value. Future revenue and profit projections may be justifiably reduced from previous levels due to economic uncertainties resulting from COVID-19. Staffing challenges, temporary closures, shifting customer habits, and supply chain disruptions all add to the uncertainty of many business’s future outlooks, thereby introducing a higher degree risk (in valuation parlance, more risk results in a higher discount rate from which to apply to a business’s prospects). Finally, the market pricing of publicly traded business has come down substantially off their pre-crisis high. All these factors can lead to a lower valuation, which is very beneficial when attempting to transfer a business to the next generation with the minimum gift and estate tax impact.

Planning Opportunity #3: Leverage low interests

One benefit of today’s’ financial climate is the low-interest-rate environment. The low rates make many advanced estate planning “discount” techniques, such as Grantor Retained Annuity Trusts (GRAT), Charitable Lead Annuity Trusts (CLAT), intra-family loans, and Intentionally Defective Grantor Trusts (IDGT), more attractive. The discount element that many of these techniques utilize is dependent upon the government’s Sect. 7520 rate, which is closely tied to the one-month average of the market yields from marketable obligations, such as U.S. government T-bills with maturities of 3 years to 9 years. For many of the discount planning techniques outlined above, the lower the Sect. 7520 rate, the greater the discount the technique provides.

Planning Opportunity #4: Transfer at a “bargain price”

Finally, the reduced value of stock portfolios and other assets, potentially such as real estate, may provide an opportunity to gift at a reduced value. Again, nobody knows what the future will bring as far as the performance of the stock market, but the hope is that the market downturn is short-lived and that the market will recover and flourish in the future. Gifting at today’s lower values does present an opportunity to efficiently transfer assets out of your estate while at the same time preserving estate tax credits and exclusions.

In summary, the goal of this article was to outline several planning concepts that may be well-timed to consider in light of the disruption caused by COVID-19. While they may not be applicable to everyone, the point here is these stressful and uncertain times should not prevent us from taking advantage of opportunities that are born out of this crisis.

Scott LaValley

Managing Director – Financial Planning

Baldwin & Clarke Advisory Services, LLC

Email: scottl@bcasi.net