The stock market’s volatility over the past week has likely caused clients to hop on the proverbial “emotional roller coaster.”
While investors may be inclined to pull out of the market, sophisticated investment professionals are urging them to refrain from doing so. In fact, many are taking advantage of the lower stock prices.
While this is an unsettling time, this “ride” could be a great opportunity for estate and tax planning.
Below are a few strategies for clients to consider.
Lifetime Gifting
Gifting stock when the market is down allows clients to transfer wealth at a lower value. Clients can maximize their use of the annual gift tax exclusion ($19,000 per person), and for larger gifts, their unified credit against gift and estate tax ($13,990,000 per person), eliminating Federal Estate Tax of forty percent (40%) on the future appreciation of the gifted assets.
ROTH IRA Conversion
Clients with a sizeable traditional Individual Retirement Account (“IRA”) might consider converting the pre-tax IRA to a Roth IRA. Converting while the stock market is down means a lower tax bill now, with higher tax-free returns going forward. Roth IRAs also eliminate required minimum distributions once the client reaches age 73, as well as the ordinary income tax associated with the required minimum distributions.
Grantor Retained Annuity Trusts
Grantor Retained Annuity Trusts (“GRATs”) can be utilized to transfer wealth to family members in a tax-efficient manner. When structured properly, clients creating GRATs can transfer significant wealth without using any of their unified credit against gift and estate tax (defined above). GRATs are also a great tool to transfer wealth when clients have fully utilized all of their unified credit and are unwilling to pay gift tax.
The above strategies are just a few ways clients can look on the bright side during an unsettling time. There are various other estate planning techniques that can be implemented to take advantage of the downturn in the market.
If you have any questions about the above estate planning strategies, or other questions about taxes and estate planning, please contact Stefanie Pate. Stefanie is a partner in Leech Tishman’s Trusts & Estates Practice Group and is licensed in Pennsylvania, New York, and Florida. She can be reached at 412.261.1600 or spate@leechtishman.com.