Strategic Estate Planning for Another Year of Change

May 12, 2021

By Lisa Herzer

For those in the transfer tax world, 2020 was a year like no other.  It appears 2021 will be another year where estate planning will be challenging. On Tuesday May 4, Diana Zeydel of Greenberg Traurig, P.A. and Todd Angkatavanich of Ernst & Young LLP presented “Strategic Estate Planning for Another Year of Change” at the 2021 Heckerling Institute.  Mr. Angkatavanich set the stage by discussing how a lot of clients took advantage in 2020 of the $11.58M estate/gift exclusion anticipating that the large exclusion available in 2020 would be reduced in coming years with the change in administration.  Those that did take advantage are breathing a sigh of relief with all the current proposals out there.  Those that did not pull the trigger, however, are concerned about retroactive legislation in 2021. He also made note that most of the proposals do not contain retroactive provisions.

Ms. Zeydel started off by stating that the theme of planning this year is to move the planning forward without doing any harm.  Some of the techniques they discussed were:

  1. Sale to an Existing Grantor Trust-The Sanders bill contains language that would require post-effective date grantor trusts to be brought back into the grantor’s estate. Therefore, if you have existing grantor trusts you may want to consider doing sale transactions with the trust. The bill only requires new contributions to be brought back into the grantor’s estate; there is no mention of sale transactions being tainted.
  2. Setting up “Shelf GRATs” - This would require putting together a series of GRATs funded with cash. These GRATs would be grandfathered since they were set up before the effective date of any legislation.  You could then, down the line, swap growth assets into the trust and take back the cash. 
  3. Planning with Preferred Partnerships - Preferred partnerships, sometimes referred to as “freeze partnerships,” effectively “freeze” the return of one class of partnership interests at a fixed rate. That class of partnership interests do not participate in the upside growth of the partnership, as all the future appreciation in excess of the preferred coupon and liquidation preference belongs to the common “growth” class of partnership interests, typically held by the younger generation. The preferred interests are typically held by the senior generation family member. There are various issues that must be considered in connection with the formation of a newly created preferred partnership.
  4. Funding Up-Generation Gifting - This planning idea is based on utilizing grandparents’ gift and GST exemptions. When significant family wealth has been generated at the current generation, the grandparents may have asset levels that would not enable them to make full use of their current combined gift tax exemptions. However, there are certain opportunities to shift asset value by way of appreciation to the “up” generation, which may provide an opportunity for them to “build up” wealth in their estates so as to use some or potentially all of the current valuable gift, estate, and/or GST exemptions. Mr. Angkatavanich states that one way is to use short term “pop” loans. You loan funds to the generation above at the low AFR. They then invest that money, make significantly more than the AFR, pay back the loan and have now accumulated assets to be able to utilize some of their exemption and to pass down those assets to grandchildren. He also discussed another way to utilize UPGEN planning is to use a zeroed-out GRAT where the grandparent is the beneficiary. Mr. Angkatavanich notes that you have to be careful, though, not to overshoot the mark and put too much in the grandparent’s estate, thereby creating a taxable estate.
  5. SPACs – Angkatavanich observed that planning with SPACs has some similarities to carried interest transfer planning but in other ways it’s very different. Whenever you have an asset that has that potential for “pop” potential, it makes it a good candidate for estate planning.

So while 2021 may bring uncertainties and challenges, the session featured insight that there are still plenty of opportunities for planning.

And for more coverage of the 2021 Heckerling Institute on Estate Planning, please also see:

And for more coverage of the 2021 Heckerling Institute on Estate Planning, please also see:

About Lisa L. Herzer

Lisa Herzer is a Tax Director providing tax consulting services, compliance and research for more than 30 years.