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Planning Strategies in Uncertain Times

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In the recent days and weeks, many of our conversations have focused on the financial markets’ reaction to COVID-19 and evolving investment strategies in response to the volatility therein.  There is no doubt we are in uncertain and unprecedented times.

Although times are trying, there are several wealth planning strategies that can be utilized in down markets and in low interest rate environments.  In certain situations, these strategies may be even more effective in the current environment.  We discuss several of these planning strategies below:

Grantor Retained Annuity Trusts (GRATs)

A GRAT is an irrevocable trust aimed to transfer appreciating assets out of the Grantor’s estate while using little, or sometimes none, of the Grantor’s lifetime gift tax exemption.  The Grantor receives an annual annuity payment for the GRAT term.  This strategy, especially when utilizing short-term, rolling GRATs, can work particularly well in low interest rate environments and when asset values are depressed.  The current environment may also create an opportunity to extend the term of an existing GRAT or, if the trust allows, substitute assets in the trust with individual assets that have greater appreciation potential.

Charitable Lead Annuity Trusts (CLATs)

A Charitable Lead Annuity Trust (CLAT) is similar to a GRAT, except the annuity payment is made to charity.  At the end of the trust’s term, the remainder interest must be distributed to non-charitable beneficiaries (usually family members).  A CLAT works best in a low interest rate environment because any investment performance in excess of the IRS hurdle rate passes tax free to the family members at the end of the trust’s term.  The lower the rate, the larger the potential tax-free transfer.  A CLAT should be structured to zero out at the end of its term, resulting in little or no gift tax.

Trust Funding

Similarly, with an eye towards transferring appreciating assets outside of one’s taxable estate using a comparatively lower lifetime exemption amount, an existing (or new) trust can be funded with securities.  In some cases, one’s generation skipping transfer (GST) tax exemption can be applied to the transfers to realize additional long-term benefit.


Even without a trust, gifting securities now while pricing is volatile can leverage the value of those gifts in the future when markets stabilize.  One may make gifts within the federal annual exclusion amount (currently $15,000 per person, per year).  Gifts in excess of $15,000 count against one’s lifetime exemption (currently $11.58M in 2020) and must be reported on a federal gift tax return.  This historically high lifetime exemption creates even more opportunity to transfer assets with appreciation potential outside of one’s taxable estate.

Family Loans

Particularly when interest rates are low, loans can be made among family members under IRS regulations and with proper documentation as an alternative to gifting assets.  Inter-family loans have historically been a popular planning tool and can be especially attractive now when certain family members may need temporary access to additional capital.  Keep in mind that low interest rates can create other lending opportunities, as well, such as refinancing a mortgage or opening a home equity line of credit.

Roth IRA Conversion

For those considering or in the process of converting a traditional IRA to a Roth IRA, doing so while asset values are lower can reduce the “cost” of a conversion (i.e., income tax paid on the amount of the assets converted.)  You may recall from our prior communications that a Roth IRA conversion is also a planning strategy that may be used to mitigate eventual income tax consequences to traditional IRA beneficiaries post passage of the Secure Act.

To discuss any of these planning opportunities further, please reach out to your WMS advisor.  As always, we are poised to work with you and your other professional advisors to implement strategies which may benefit your family based on your individual circumstances.