Taxpayers “Freezing” Estates: Low Energy Prices, Interest Rates

BATON ROUGE – According to a post on the Louisiana Law Blog written by Kyle C. McInnis, a partner in the Shreveport office of Kean Miller LLP, the current economic climate consisting of low energy prices, low interest rates and a recent rise in the federal estate tax rate makes estate freeze transactions particularly attractive.

         “While this significant price drop is painful for those in the oil and gas industry, it presents a significant estate planning opportunity,” McInnis writes. “For people fortunate enough to be concerned about federal estate taxes (those with a net worth in excess of $5.43 million dollars individually or $10.86 million for a married couple) the 40% tax rate presents a significant threat to their family wealth. Therefore, these taxpayers try to minimize the value of their taxable estate, thereby minimizing their exposure to the federal estate tax. Taxpayers often use discount entities and other tax strategies to reduce the taxable value of their estates.”

         McInnis writes the dip in energy prices has minimized asset values and taxpayers are “freezing” the low value of their oil and gas assets now. That means when energy prices recover, their taxable estate would reflect the current values of today’s lower prices.

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         “The value of the assets grows with the subsequent increase in energy prices, but outside of the taxpayer’s taxable estate,” McInnis writes.

         McInnis writes there are different types of freeze transactions including grantor retained annuity trusts or unitrusts, or a sale to an “intentionally defective grantor trust.”

         McInnis writes the above transactions work best when interest rates are low. 

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