The 1999 report titled Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy by the Social Welfare Research Institute at Boston College predicted that over the 55-year period from 1998 to 2052, a minimum of $41,000,000,000,000 will pass from one generation to the next. Does that prediction still make sense given the current once-in-a-generation recession?
In the January 27, 2003, issue of the Planned Giving Design Center, LLC, newsletter, the authors of the study issued an updated report confirming that estimate. It has now been 6 years since their update, and the market has gone up and down since then.
Currently, in February 2009, four factors have come together to make this a once-in-a-generation opportunity to do estate tax planning, whether that $41 trillion estimate is high or low. The window on this opportunity will close sometime in the next year or two. Here are the four factors:
(1) The lowest interest rates since the IRS started requiring interest rates for transfers among family members;
(2) Low asset values, whether for closely held businesses, investment real estate, or publicly traded securities;
(3) High valuation discounts (the discounts for lack of control and lack of marketability are inversely related to the stock market); and
(4) Introduction of a bill—H.R. 436—on January 9, 2009, that would eliminate valuation discounts on transfers of passive assets among family members and eliminate the lack of control discount for transfers of interests in closely held entities among family members.
Advisers should put on their Elmer Gantry hats and preach the true religion to their clients to take advantage of this opportunity to transfer wealth now, and recognize that the same structures used to reduce the value of assets for estate tax purposes also have creditor protection benefits.