Rich Americans Take The Chance to Pass On Tax Free Wealth
According to Bloomberg, wealthy people are taking advantage of the low rates to loan cash or other assets to their heirs. Falling rates enhance estate-planning strategies, especially those that rely on loans to trusts. The advantage of these techniques, as well as simpler loans, is that they don’t use any of the U.S.’s estate and gift tax exemption - the amount that Americans can transfer to heirs without triggering the tax. Along with the low-interest rates, low valuations also make it possible to transfer assets to heirs without using up as much of the gift-tax exemption, thereby sharing tax free wealth. Americans will inherit an estimated $764B in 2020, and pay an average tax of just 2.1% on that income.
Rich Americans are taking advantage of an unprecedented opportunity, made possible by the coronavirus pandemic, to transfer money to their children and grandchildren tax-free.
Thanks to the 2017 Republican tax overhaul, it was already easier than ever to avoid the U.S. estate and gift tax, a 40% levy on the biggest fortunes. Now, plunging interest rates and volatile equity markets are creating a once-in-a-lifetime chance that’s keeping wealth advisers busy even as they work from home.
“Our phone is kind of ringing off the hook,” said Jordan Waxman, managing partner of Nucleus Advisors. “There really hasn’t been a better time to plan.”
Key interest rates set by the Internal Revenue Service for estate-planning purposes have never been as low as they are starting this month. For example, the so-called Section 7520 rate, determined each month based on a formula, fell to 0.8% in May from 1.2% in April. It had been well above 2% for most of last year. The previous low for the rate, which applies to many popular trust strategies, was 1% in January 2013.
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