June 18, 2020

How Low Stock Values and Interest Rates Can Work in Your Benefit for Estate Tax Planning

COVID-19 has changed the entire world, including how we do business, see loved ones, or even go to the store. But it has also inadvertently affected the world of estate planning. There are now many ways individuals can advance their estate planning and save tax money in the long term. Stock values are down, and interest rates are lower than they have been in years, making now the perfect opportunity to use some of the below estate tax planning strategies.

Roth Conversions

If you have a traditional IRA that is taxed upon withdrawal, it might make sense to convert to a Roth IRA that is taxed at initial investment and tax-free upon withdrawal. Currently, the market is down, so converting these now could result in a lower tax amount paid in the long run. Tax rates are also relatively low and other income may be down this year due to the economy, which may allow you to convert at lower tax rates than you would pay in retirement.

Say your traditional IRA was valued at $2 million, and now has dropped to $1 million. Because this will likely rebound back to the $2 million or even higher later, now is the time to convert some or all of this to a Roth IRA. If you convert the whole IRA, yes you will pay tax now, but you will only pay tax on the $1M Million current value, but then this will grow tax free. In comparison, if you leave it in a traditional IRA, and it rebounds to $3M, you could be paying 3x the tax when you finally withdraw from the account.

Gifting Opportunities

This is also a great time to gift to the next generation. Each year there is an annual gift exclusion, it is currently $15,000 for individuals and $30,000 for couples in 2020. Taxpayers can gift up to this amount to an individual without using any of their lifetime Estate Tax Exemption.


Since stock values are down, gifting these depreciated stocks now to the next generation before they regain their value is a great gifting tool.

Family-Owned Businesses

This is a great time to gift family-owned businesses or family limited partnerships to the next generation as well, depending on the valuation of the company. Assuming the value is down, you can gift a larger percentage now rather than when the company is valued higher.


Intra-family loans are now a greater tool than before, due to the low interest rates. The AFR rate is at a historical low and presents an opportunity to loan to family members for very low interest.


It could also be a great time to sell property, that’s expected to appreciate, to an intentionally defective grantor trust. As long as the property appreciates faster than the interest rate set by the trust at setup, then this property appreciation will be a tax-free transfer for gift and estate tax purposes.

The Estate Tax Exemption of $11.58 Million is set to revert to the old amount in 2025 and be half of the current exemption. If your estate would be in this range of concern, above $5.5 million per person, this is a great time to do some estate tax planning. Once 2025 is here, or earlier depending on the political environment, you could lose half of your gifting opportunity.

GRATs (Grantor Retained Annuity Trusts)

Due to historically low AFR rates, this is the perfect time to consider using a GRAT for your estate planning. In order to create a GRAT, an individual must transfer assets into the trust. The individual has the right to receive the trust annuity payments from the trust for the length of the term. The payments are set based on the AFR rate, which is currently very low. The individual receives these payments for the remainder of the term, and upon the end, the remaining assets pass to the beneficiaries with no estate tax exemption used.

In order for a GRAT to be successful, appreciation of the assets and the income earned from the assets must exceed the IRC Section 7520 rate.  For June 2020, this rate is only 0.6%!  With asset values down right now, it could allow for a lot of asset appreciation to be transferred with no or very low estate tax exemption used.

Contact an Anders advisor to discuss any of these estate tax planning opportunities or other personalized Family Wealth and Estate Planning.

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