Estate Planning in Today's Distressed Economy
Real estate values are down, stock prices are down, and interest rates are very low. All of these factors have an impact upon your estate plan. These are some of the issues you should look at.
Existing Estate Plans
You should review your estate plan in light of changed values of assets. For example, if your estate plan provides for distribution of specific assets, such as parcels of real estate, or stocks, you should determine whether this distribution still appropriately reflects your wishes. Perhaps that ten thousand dollar gift to each grandchild upon your death is no longer appropriate in light of the reduced value of your stock portfolio.
You may have decided that you want your estate to be divided equally between your children. However, in this economy, you may find that you have helped one child more than others. Should your estate planning documents be amended to provide for an equal distribution to your children, both during your life, and after death?
You should also look at the distribution of your assets upon your death. Is one of your adult children or another beneficiary experiencing financial difficulty? If your child's inheritance is at risk of being taken by your child's creditors, you may want to look at making distributions to other beneficiaries, such as grandchildren, in lieu of making distributions to the child. In addition, it is possible for you to distribute the inheritance to a "Discretionary Trust" for the benefit of that child. This type of trust will protect the inheritance from creditors.
Low Interest Rate Loans
If you want to lend money to a child who is having difficulty making mortgage payments, or is facing high interest rates, the loan can be made now at a very low rate of interest. The IRS does require that interest be paid on intra-family loans. However, at this time interest rates are very low. For example, the IRS rates for February 2009 ranged from 0.60% to 2.96%, depending on the term of the loan.
Gifts
As of 2010, you can give away as much as thirteen thousand dollars a year to as many people as you wish, without any estate or gift tax consequences. In addition to this amount, you can give away more by directly paying someone's tuition or medical expenses. These payments don't even count towards the thirteen thousand dollar a year limit.
Your gifts can be in cash or in depreciated securities. If you give depreciated securities, the value of the gift is set on the day the shares are transferred. If the stock goes back to higher levels, the beneficiary will own the stock and it will be out of your estate for estate tax purposes.
If you have a larger estate, the economic downturn is a particularly good time to transfer assets to the next generation. The low interest rate environment provides an opportunity to use specialized estate planning techniques for the large estate that are beyond the scope of this article.
