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COVID-19 Tax Planning Update

During these challenging times, we are often thinking of our family members. Some of us are at home with our entire family together in the same house, while others must live apart. No matter what your situation is, times like these bring our minds to reflect on those whom we love the most.

As we think of our loved ones and their health and wellbeing, there is an opportunity to think about their financial future. While estate planning and wealth transfer strategies should be reviewed every now and then, the present situation provides some unique circumstances that should be considered.

We are in an environment where asset values have plummeted in the last few weeks. Generally, when an individual transfers an asset out of his or her estate to family members or irrevocable trusts, the value of the transferred asset is essentially “frozen” for gift and estate tax purposes at the time of such transfer. Any appreciation of the value of the asset after the transfer passes free of gift and estate taxes. Thus, transfers while asset values are depressed create the potential for the tax-free transfer of wealth when asset values later appreciate. Traditional estate planning techniques may be rendered that much more effective where individuals are able to transfer more assets, or use less estate and gift tax exemption, in making transfers.

One area where this could be very effective is the gifting of family limited partnership interests. A gift of a certain percentage of ownership will use less estate and gift tax exemption now while asset values are lower. Alternatively, a larger percentage of ownership can be given now than might be possible in the future due to the current lower asset values. This can be a very useful strategy if there has been a desire to get more FLP interests to other family members but there have been concerns about using too much estate and gift tax exemption.

This type of strategy would be very effective when the underlying assets are made up of holdings such and oil & gas mineral interests, marketable securities, and other such holdings, where current market prices are significantly lower than they normally are and will most likely recover sometime in the future.

Gifting of FLP interests provides another opportunity for family connectedness beyond financial security. As more family members become owners vested in the future success of the family ventures, they can be included in planning and discussions. This allows for generations to pass along their experience, wisdom, and insights into handling financial matters, whether done using video conferencing or in-person, leaving a legacy to future generations beyond simply monetary assets.

It can be difficult to make sense of all the new legislation passed in the wake of COVID-19. Contact us to learn more about these exciting tax benefits and how this can apply to your business.  Check out our COVID-19 Resources page for more information.

Keith Hollar

TAX PARTNER

972.848.6513
Email Me

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