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Ashley works with clients to bring strategy, structure, clarity and confidence to their global financial lives and keep it that way. ​In 2013, Ashley founded Arete Wealth Strategists, a fee-only financial planning and investment management firm for Australian/American expatriates.
May 12, 2020

Estate Planning Made Easier

Most people no longer have to worry too much about the federal estate tax, since (currently) $11.58 million is sheltered from federal taxes for the heirs of each person; $23.16 million for couples.  Any unused amount after one spouse dies can be applied to shelter estate assets whenever the surviving spouse dies.  

But what about wealthy people who will pass on more than that to their heirs?  Is there any way to mitigate the nasty 40% tax bite on estates for any dollars passed on above those thresholds?

The current investment environment seems like the worst of all possible worlds: practically nonexistent interest rates and bear market returns.  But it offers an unprecedented opportunity for high-end estate planning. To cite one opportunity, a wealthy individual who is worried about estate taxes can lend some of the money she wanted to pass on to her heirs.  In order to avoid having to pay gift taxes on the transactions, the heirs must pay interest at a rate of at least the so-called Section 7520 rate, which is adjusted monthly based on current interest rates. The current rate, 0.8%, happens to stand at a record low, down from well above 2% for most of last year.  The previous record low was 1% in January 2013.

That is the rate for loans that are paid back within 9-20 years; the rate for shorter (3-9 year loans) fell to 0.58% in May.  The estate planning strategy is for the heirs to invest the assets and, theoretically, earn a much higher return than the amount that has to be paid back to the parents.  The investment returns more than pay the interest and loan repayments, and at the end of the term, the heirs pocket whatever is left estate-tax free.

At the same time, lower valuations on stocks, due to the recent bear market decline, makes it more beneficial to sell assets (at low current prices) to trusts or other structures that would benefit future generations.  The gains in those assets take place in the hands of the heirs.



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