Planning Briefs
Family Wealth Transfer Opportunities Spawned By Covid
Published Wednesday, Sept. 2, 2020; 11:00 AM EST
(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.
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