Estate Planning Update and Year-End Planning Opportunities

With a bumpy summer winding down and a presidential election on the horizon, now is a good time to revisit your estate plan to be sure it accurately reflects your wishes and allows you to capitalize on current and year-end planning opportunities. Here are three key things to keep in mind:

Opportunities for Planning in a Low Interest Rate Environment

Interest rates are still at historic lows—making certain estate planning opportunities very attractive, including intrafamily loans, grantor retained annuity trusts (GRATs), charitable lead annuity trusts (CLATs), and sales to grantor trusts. In certain circumstances, it also may be appropriate to refinance existing intrafamily loans at today’s lower rates.

Possible Premature Reduction of the Federal Gift Tax, Estate Tax, and GST Tax Exemptions

Under current law, the federal gift and estate tax exemption, which is the amount of assets individuals can transfer tax-free during their lifetimes or at death, is $11.58 million per individual (or $23.16 million per married couple). The generation-skipping transfer (GST) tax exemption, which is the amount of assets individuals can directly transfer to grandchildren and more remote descendants tax-free, also is $11.58 million per individual. Each of the federal gift tax, estate tax, and GST tax exemptions is scheduled to decrease to approximately $5 million per individual (adjusted for inflation) on January 1, 2026. However, if the balance of power shifts in Washington following the upcoming election, the exemption amounts could be reduced sooner and/or to an even lower dollar amount. Consequently, now may be a good time to make gifts to family or trusts to “lock in” the benefits of these higher exemptions.

Post-death Distribution of IRAs and Retirement Accounts Under the SECURE Act

Earlier this year, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) made substantial changes to the distribution of an IRA or other retirement plan account to the beneficiary of such account after the account owner’s death. In short, the SECURE Act eliminated the “stretch payout” (i.e., the ability of a beneficiary to withdraw the funds gradually over his or her lifetime) for most beneficiaries, with some exceptions for spouses, minors, and certain disabled persons. In most cases, the beneficiary of a retirement account now will be required to withdraw the entire account—and pay all associated income taxes—within 10 years of the account owner’s death. In light of these changes, we strongly recommend that you review and, if necessary, update your beneficiary designations for your retirement accounts. This is particularly true if you have named a trust as a beneficiary of a retirement account, as the new rules may have changed the distribution at your death in a way you would not desire (e.g., it may result in not only a distribution of all assets in the retirement plan to the trust within 10 years of your death, but also a distribution of all such assets from the trust to the income beneficiary on the same time frame).

Ballard Spahr’s Private Client Services Group is here to advise on estate and business planning for individuals.

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