Mid-Pandemic Planning for High Net Worth Individuals

The second condition is business valuations that likely are lower right now because companies have lower cash flow projections and because of lower valuation multiples and larger valuation discounts. These lower values for transfer tax purposes mean that the donor will use less of his or her applicable exclusion (which is currently $11,580,000). Combined, these circumstances can have a staggering compounding effect that results in substantially lower values for many businesses, making now the perfect time to transfer ownership of a family’s closely held business (and other assets) to the next generation.

The third condition is the result of changes under the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA generally removed the ability to provide for post-death stretch distributions from individual retirement accounts (IRAs) or 401(k)s. Prior to the TCJA, asset distributions from certain types of retirement plans, like an IRA or a 401(k), could be delayed well beyond 10 years after the account owner’s death. Now, most beneficiaries are required to withdraw all plan assets within 10 years of the participant’s death. Taxpayers who have an IRA or a 401(k) and who have not updated their estate plan to account for this law change should consider doing so now. Also, under the TCJA, the gift and estate tax exemption is scheduled to be reduced in 2026, and proposals exist to reduce the exemption even sooner. Acting now can lock in the higher exemption.