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Estate planning tactics based on a changing market

New Jersey residents engaged in estate planning should assess how to take advantage of today's volatile market to achieve their goals. The volatile market combined with historically low interest rates and an increase in the federal gift tax exemption can provide beneficial planning options for individuals who plan ahead.

Some estate planning attorneys have suggested three strategies to gain the utmost advantage from this combination of factors:

Give shares of stock to family members at a large discount. Because the stock market is highly volatile, the IRS may accept a larger discount for tax purposes than ordinarily. With the current increase in gift tax exemption, such transfers to family members are particularly timely, and the granting of larger discounts from paper value allows bigger transfers of wealth.

Place depressed shares of stock into a grantor retained trust (GRAT). This enables placing assets in a trust while keeping the right to annuity payments funded by the asset for a specific period. While it appears to make a gift of the stock, what it actually makes a gift of is the possible future increase in value of the stock only. If the price of the stock later increases, it can be gifted to descendants or to a trust benefiting them, and avoid gift tax, as long as the value does not exceed $5 million.

Parents can also leverage the combination of depressed stock prices and low-interest rates. By lending money to a trust benefiting their children and encouraging children to use the loan for stock purchases, parents can benefit even more. They could then enjoy the fruits of future increases in the value of such assets after paying off the low-interest loan.

Source: Wall Street Journal, "Assess goals and options when planning your estate," Kelly Greene, Aug. 20, 2011

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