Wealth transfer planning involves the transfer of appreciating/income producing assets out of your taxable estate for federal gift and estate tax purposes. Such transfers occur in the form of a gift or sale of these assets, or combination thereof, to an irrevocable trust. For married couples, each spouse can establish an irrevocable trust and transfer assets to his/her respective trust. Typically, you and/or your spouse will first gift assets in an amount up to your remaining federal gift/estate tax exemption (currently a total of $11.58M per individual, or a total of $23.16M for a married couple). If your assets exceed the amount of this gift (e.g., the gift/estate tax exemption is exhausted), you and/or your spouse can sell your remaining (e.g., ungifted) assets to your irrevocable trust and take back a low interest promissory note in exchange.
The interest rates published by the IRS establish the lowest permissible interest rate for this promissory note. The permissible interest rate available for May is under 0.6%, which is an all-time low!
The practical effect of this low interest rate sale technique is that you move your income producing/appreciating assets out of your taxable estate by exchanging them for a low-income producing/non-appreciating note. In effect, you “freeze” the value of your taxable assets and shift the future growth and income to the non-taxable trusts. If you have previously sold assets to an irrevocable trust utilizing this technique, you can refinance any existing promissory notes to take advantage of this lower interest rate. In addition, now is a great time to make additional wealth transfers utilizing asset sales, as it is highly uncommon for the AFR to be as low as it currently is and is expected to increase in the future.
The Estate/Wealth Planning attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with their wealth transfer planning needs. Please contact Dvorak Law Group for specific questions and recommendations regarding available wealth transfer planning opportunities, including the restructuring of existing promissory notes and making additional asset sales.
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