Wealthy Americans are transferring money tax-free to their heirs, thanks to the coronavirus pandemic and concerns that President Donald Trump might lose re-election.
The Republican tax overhaul in 2017 already made the estate and gift taxes easier than ever to avoid, but super-low interest rates and volatile equity markets have kept wealth advisers busier than ever, reported Bloomberg.
“Our phone is kind of ringing off the hook,” said Jordan Waxman, managing partner of Nucleus Advisors. “There really hasn’t been a better time to plan.”
Interest rates set by the Internal Revenue Service are at record lows this month for estate-planning purposes, and one rate that applies to many trusts has fallen below 1 percent for the first time ever.
The pandemic crisis has eaten into Trump's approval rating, which has spurred the wealthiest Americans to act now -- especially since Democratic frontrunner Joe Biden has proposed closing some estate tax loopholes.
“If you think Trump is a one-term president," said Megan Burke, an accounting professor at Marist College, "you would be doing even more of these transfers now."
Stay-at-home orders have also given wealthier Americans more time to plan for future generations.
“It’s a little crazy,” said Jim Bertles, managing director at Tiedemann Advisors. "I’m busier now than I was before this pandemic. “It’s because clients and prospective clients reaching out to us have a lot of time on their hands.”
These record-low rates can be locked in for years or even decades, and one wealth manager said many of his clients are taking out longer-term loans to take advantage of those historically low rates.
Those rates also help the wealthy loan money to relatives to stay under the estate and gift tax exemption, which is the amount Americans can transfer without triggering the tax.
This year's exemption was doubled under the 2017 tax bill, allowing Americans to transfer $11.6 million to individual heirs or more than $23 million to married couples.
The easiest strategy for the rich is to loan cash or other assets to relatives, who can borrow millions of dollars to invest -- and then keep the profits.
A grantor retained annuity trust, or GRAT, allows beneficiaries to profit from future investment gains, which no risk of losing money, as long as their returns are higher than the IRS interest rate -- so the lower the rate, the money heirs can make.