By Todd Blanding | Forbes
Much has been written about the potential social and financial benefits of investing in opportunity zones via qualified opportunity funds (QOF). The potential bottom-line benefits are particularly compelling as a strategy for clients looking to defer taxes, especially if they have a long-term investment horizon. Potential investors often wonder, however, how these investments fit within the context of estate planning and how can they be utilized to maximize benefits.
Before answering these questions, let’s start with a quick summary of current gift and estate tax law. The current gift tax exemption increases to $11.58 million in 2020. However, absent further action from Congress, in 2026 the gift tax exemption is scheduled to return to approximately $6 million. The gift tax exemption can be used to transfer wealth by lifetime gift or upon a person’s death. The lifetime use of the exemption reduces the exemption remaining upon death. Further, an individual has only one exemption available, which can be used and divided among as many beneficiaries as the individual chooses. If there are gifts or transfers upon death in excess of the exemption, those assets are currently taxed at 40% — not an insignificant tax liability, especially when considering the planned reduction in the exemption level in 2026.
“Just as with other long-term investments, thoughtful estate planning may reduce unexpected tax consequences associated with an opportunity zone investment.”