High Interest Rates Make Estate Planning Challenging

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high interest rates and estate planning

The Impact of High Interest Rates on Estate Planning

Estate planning is a complex process that requires careful planning and consideration of various economic factors, including interest rates. As interest rates fluctuate, so do the strategies legal professionals, like AJM&A, use to help individuals and businesses seeking to effectively manage their estate. High interest rates can have a definite impact on your estate planning process.

For anyone who became an adult during the 21st century, today’s interest rates are the highest you’ve had to navigate. For example, mortgage rates crossed 7% in the fall of 2022, which was the first time we’ve seen mortgage rates that high in over 20 years. As of October 9, 2024, the average interest rate for a 30-year fixed mortgage is 6.46%. This is higher than the 5.74% average rate from last month, but lower than the rates from early 2023 when they were below 6%. The consensus is that mortgage rates will continue to decrease in 2024.

Navigating the High-Interest-Rate Fluctuations

High interest rates significantly affect the estate planning process with challenges to individuals and families. For example, estate planning attorneys are considering more Qualified Personal Residence Trusts (QPRTs) because they generate a lower remainder interest when the interest is higher. This results in a smaller taxable gift.

In a high-interest-rate climate, managing assets such as real estate or investments requires strategic planning. Entities like LLCs or LPs can be used to hold such assets, allowing clients to maintain control while potentially benefiting from valuation adjustments.

Ensuring realistic expectations and flexibility is essential in creating your estate plan. Clients should take advantage of the current economic conditions to implement strategies that align with their long-term goals. Building a strategy and working with a team of professionals can ensure that your individual needs are met. We are here to help, just contact us.