Asset values down? Still have an estate tax “problem”? Here are some tips:

Gifts and other transfers. Consider gifting stock and certain other assets that have had a reduction in value due to the pandemic that, over time, are expected to regain their value and then some. This can be part of your annual $15,000 (per calendar year, per recipient) gift. It can also be part of a strategy utilizing some of your lifetime estate tax exemption amount.

This is also an ideal time for some clients to undertake more sophisticated planning, such as “sales to defective grantor trusts” and Grantor Retained Annuity Trusts (GRATs). With the reduced value assets and very low interest rates, significant net worth can sometimes be transferred to the next generation (or even generations) for little to no estate tax cost; effectively leveraging your lifetime estate tax exemption.


Roth conversions. Some clients have significant amounts in their taxable IRA. To convert to a Roth IRA would result in a current income tax. To the extent the IRA value is significantly reduced, now may be a good time to convert some of the IRA to a Roth IRA and incur the income tax on the lower values. Remember that there is no requirement to convert the entire IRA. Remember also to pay the appropriate estimated tax on the converted portion of the IRA.


Net Operating Loss. One often overlooked provision of the COVID-19 tax relief package is the ability to carryback certain net operating losses. While many businesses certainly would rather not have a loss, in some cases, a business has some legitimate flexibility in when it receives income and incurs certain expenses and deductions. New tax laws enhance this flexibility. With proper planning, it may be possible to generate a net operating loss for the current tax year in an otherwise healthy business and carry back the loss to a prior tax year. This could result in an income tax refund for a prior year at the cost of income tax in the future.

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