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Planning Considerations in a Challenging Environment

This Tax Bulletin highlights various planning techniques that may be appropriate for you to consider.

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Recent market volatility and global news on the coronavirus (COVID-19) have heightened concerns and raised questions for all of us. First and foremost, the threat to one’s health and well-being is, of course, the most difficult challenge and primary concern. We want to reassure you that at Bank of America Private Bank—and across Bank of America—we are leveraging our resources and expertise to address important questions you may have about what the situation may mean for you, your family and your business.

This Tax Bulletin highlights various planning techniques that may be appropriate for you to consider. We encourage you to review this information and contact your Bank of America Private Bank advisor if you have any questions.


Planning in a Low/Volatile Market

For assets which have been reduced in value, you may consider the following strategies:

Roth conversion

  • Individuals can convert traditional Individual Retirement Accounts (IRAs) and other tax- favored retirement vehicles to Roth IRAs.
  • As a result of the reduced valuation, there will be less tax due.
  • Prior to 2018, if your Roth portfolio decreased after the conversion, it was possible to “undo” the conversion under a process called “recharacterization.” For tax years beginning after 2017, you can no longer recharacterize a Roth conversion.

Tax loss harvesting

  • If appropriate, securities may be sold at a loss in order to offset a capital gains tax liability. Losses can offset capital gains, or other income up to $3,000 per year or be carried forward.

Lifetime gifting

  • Making gifts during life should be considered in order to reduce estate tax which would otherwise be due at death.
  • Since the gift tax is based on the value of the asset at the date of the gift, it may be advantageous to make gifts of assets which have declined in value.
  • There are various strategies for making gifts, including annual exclusion gifts, exemption gifts, grantor retained annuity trusts (GRATs), and sales to intentionally defective grantor trusts (SIDGTs).

Generation-skipping tax (GST) planning

  • GST planning often involves creating trusts which will be exempt from GST tax by reason of allocation of GST exemption.
  • In the case of a timely allocation, the trust is valued at the date of its creation.
  • In the case of a late allocation, the trust is valued at the date of the allocation. For trusts which have declined in value, it may be advantageous to make a late allocation of GST exemption. 


  • Consideration could be given to swapping personally held low value assets with cash in existing trusts.


Low Interest Rate Environment

In a low interest rate environment, you may consider the following strategies:

Grantor retained annuity trusts (GRATS) and Sales to intentionally defective grantor trusts (SIDGTS)

  • Both of these popular techniques generate a free gift to the trust beneficiaries when the assets in the trust outperform interest rates prescribed by the Internal Revenue Service (IRS). 
  • Accordingly, when interest rates are low, the ”hurdle rate” is low and the trust is more likely to succeed by outperforming the prescribed rate. These strategies also benefit from lower initial asset valuations if values are expected to improve over the term of the trust.
  • For GRATs well underwater without prospects of recovery, consideration should be given to swapping assets with the GRATs and creating a new GRAT.


  • A Shelf GRAT is designed to lock in current low interest rates.
  • As a result of market factors and the Federal Reserve (Fed) rate cut, the May and June rates have dropped to 0.8% and 0.6% respectively, making the economics of a GRAT far more attractive.

Charitable lead annuity trust (CLAT)

  • A CLAT combines charitable goals with transfer tax planning.
  • The trust functions in a similar manner as a GRAT, and succeeds when the investment performance of the trust exceeds the IRS interest rate.

Intra-family loans

  • Lending money to family members or trusts would be more attractive in a low rate environment.

Third-party loans

  • Refinancing existing loans or establishing new loans could be attractive at low rates. Interest would be deductible if used for non- personal reasons, for instance, if traceable to investment interest.

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