Down Markets, Low Interest Rates Present Estate Planning Opportunities

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Greg Custer of Whittier Trust

By Greg Custer, EVP Whittier Trust Company in Newport Beach

What America faces now is similar to the five stages of grief, according to a professor of social work I recently spoke to. Every person will handle this pandemic stress differently. Some will be in denial, some angry, others will accept the circumstances.

How we respond is critical to our personal and financial wellbeing. We still must protect and provide for ourselves and our families. What should we do?

Fortunately, with investments and estate plans, there is always something you can do to protect and provide for your family. Up markets provide opportunities, and down markets provide different opportunities. Down markets present buying opportunities for investors, and that’s where much of the public and private discourse is focused as we each struggle to comprehend and manage the pandemic and its economic impact.  Wise investors have been rebalancing their portfolios to both contain risk and position for recovering markets.

But savvy investors can’t ignore the present multigenerational opportunity, the silver lining in our  financial cloud.  Right now, down markets plus low interest rates present significant estate planning opportunities.  While the short term is unsettling, current market conditions create rare opportunities for long-term family enrichment. Victoria Kahn, SVP, from our Nevada office, in addition to tax efficiencies, has suggested the following planning opportunities to consider, no matter your stage of life:

  1. Make Intra-Family Loans. It’s now possible to loan money at a nominal interest rate to a family member without being deemed to have made a gift.  The IRS requires that the interest rate on loans between family members not be lower than the Applicable Federal Rate (“AFR”).  This rate changes monthly, but can be fixed for the life of the loan.
  2. Make an Installment Sale to an Intentionally Defective Grantor Trust (“IDGT”). An IDGT is an irrevocable trust that is designed to make the grantor responsible for the trust’s income taxes including capital gains (with this tax payment not being deemed a gift).
  3. Create a Grantor Retained Annuity Trust or Charitable Lead Annuity Trust (“GRAT”). A GRAT is an irrevocable trust that pays back to the grantor a percentage of the value of the assets contributed for a period of two years, and at the end of the term, the assets remaining either distribute to the remainder beneficiaries (i.e. the beneficiaries other than the grantor) or remain in the trust for their benefit.  A Charitable Lead Annuity Trust (“CLT”) is similar to a GRAT , with the payments over the initial term of years being made to charity (which can be a donor-advised fund created by the grantor) instead of the grantor.
  4. Gift Interests in the Family Business. Giving interests in family businesses, including investment vehicles such as family limited partnerships, is another excellent planning tool during times of market volatility.  The business itself and or its underlying assets may have been impacted by the economic crisis.  Making a gift when the asset has dipped in value can maximize the assets passed to future generations.  And if you transfer a partial interest in the business, discount opportunities (sometimes as much as 30% or more) off the pro rata share of the business value remain possible under current IRS rules due to lack of control and lack of marketability associated with partial interest.  An appraisal will be needed for the valuation.
  5. Establish a Multigenerational Nevada Irrevocable Trust. A Nevada irrevocable trust can exist for 365 years, allowing families to pass wealth into the future through many generations, without incurring federal transfer taxes.  Nevada does not impose income tax on individuals or trusts, so income can accumulate and grow over time, free of state income tax – thus further enhancing overall growth over the life of the trust.
  6. Convert a Traditional IRA to a Roth IRA. A Roth IRA is a retirement account that grows income tax free, allows contributions to be made at any age (subject to limitations), generally provides for tax-free withdrawals after age 59½, and has no required minimum distributions, and importantly, future distributions will be income tax free.
  7. Substitute Assets in Existing Trusts. If you have previously created an irrevocable grantor trust, such as an intentionally defective grantor trust which permits a substitution of assets, swapping assets with better potential for growth can optimize the ultimate benefit of the trust.  The economic impact of this pandemic has surely changed perceptions of portfolio risk.  While rebalancing your investment portfolio, don’t ignore rebalancing assets in your existing trusts.

Whittier Trust Company and Whittier Trust Company of Nevada, Inc. are state chartered trust companies dedicated to collaborating with their clients and their clients’ advisors to optimize multigenerational family wealth. Headquartered in South Pasadena with offices in Newport Beach, the firm presently manages more than $13 billion for high net worth families. Visit

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