by Kendal Steele

Pandemic Response, TaxApril 3, 20200 comments

COVID-19 and Tax Planning Opportunities

There is no doubt that COVID-19 has caused havoc globally, negatively affecting almost every facet of our lives.  One often highlighted negative outcome has been the steep drop in stock prices as well as the decrease in property and business values.  However, in adversity there is opportunity.  Values of realty and stocks, and most likely your business, will recover over time.  The opportunity lies in the ability to use these temporary low values to pass on wealth to the next generation in a way that would not have been possible absent the decrease we are experiencing.  This will allow for the deferral or reduction in taxes on death, while passing on the soon-to-recover value to your heirs.

COVID-19 Tax Planning Example

Take this simple example.  Before COVID-19, Mr. X had a stock portfolio with a cost of $100,000 but worth $1,000,000.00, which would have grown to $2,000,000.00 in the next 10 years.  If an estate plan was put in place before COVID-19, Mr. X would have to pay, on death or during his lifetime, tax on $900,000.00 of capital gains on that portfolio, and his heirs would have inherited, over the next 10 years, $1,000,000 in value.  Assume that COVID-19 caused the value of the portfolio to Drop to $600,000.  If an estate plan is put in place at this point, Mr. X is only liable for capital gains of $500,000.00 while his heirs inherit $1,400,000.00 in value.  This is not including the dividend income from the stock portfolio.

In short, there are great tax planning opportunities available, tailored to a person’s of family’s unique circumstances. Give us a call today to learn more!

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.