Estate Planning in Turbulent Times

Share this post
Inflation’s Impact on Estate Planning

Turbulent Times Are the Perfect Time to Do Estate Planning

The ups and downs of the stock market can make people feel uncertain about their financial future. During periods of market volatility, estate planning might not be top of mind. However, it’s important to ensure that your current financial situation and estate plan are still aligned to achieve your goals. Reviewing your plan during turbulent times can help you avoid unintended tax consequences and take advantage of specific tools and strategies designed to capitalize on market fluctuations.

Can You Benefit from Market Changes?

If you are wondering if you can benefit from market changes? The surprising answer is yes. A volatile market can present opportunities in estate planning. Consider these strategies:

  • Gifting depressed assets-Gifting stocks when their value is low can be highly efficient, allowing you to transfer a greater portion of your estate while using less of your lifetime gift and estate tax exemption (currently $13.99 million per person, but set to decrease by 50% at year-end unless legislation changes this).
  • Roth IRA Conversions-Converting a traditional IRA to a Roth IRA during a downturn can result in lower income taxes on the conversion amount.
  • Check out GRATs and CLATs-the gifting techniques known as Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs), may be more successful if the market recovers. These tools can transfer wealth more efficiently if the gifted stocks grow at a faster rate than IRS projections.
  • Swap powers in irrevocable trusts: If you have previously gifted assets to certain irrevocable trusts (often called grantor trusts), you may want to swap low-value assets you own with cash or more stable assets in those trusts. This allows future appreciation to take place within the estate and gift tax-protected trust.

Be a Conscientious Trustee

If you serve as a trustee for an irrevocable trust, it’s important that you manage the risks associated with market volatility. There are steps you can take to better fulfill your duties.

  • Review the estate plan. Make sure that specific gifts to beneficiaries still align with your goals and are practical given the current financial landscape.
  • Plan for strategic gifting: Identify assets to gift, determine value points that make gifting advantageous.
  • Look for opportunities to exchange assets with irrevocable trusts to manage volatility risk or take advantage of potential market recoveries.
  • Be a proactive trustee: If you are a trustee, review and rebalance the trust’s investment portfolio with an emphasis on diversification and long-term strategy. Ensure the trust has enough cash reserves to meet short-term needs.

 

When faced with uncertain financial times, implementing such strategies can help you ensure that your legacy goals are met. With any luck you may even be able to take advantage of market fluctuations to transfer wealth more efficiently and reduce estate and gift taxes. Our estate planning attorneys are here if you have questions or concerns, contact us at info@madonia.com or (312) 578-9300.