Estate Planning in this Economic Climate

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Between inflation, increasing interest rates, federal changes to monetary policies, and global conflict, many factors are putting a strain on the current economic situation. Although a tumultuous economy understandably causes concern for many people, it may also pose several valuable opportunities. If you are in the middle of estate planning, consider the following strategies to develop a sound plan amidst widespread economic challenges. 

Create a Trust 

Trusts can be highly beneficial for those engaged in estate planning. Trusts involve moving financial resources to a third party called the trustee. Trustees manage the funds wisely and ensure they are distributed to the beneficiaries, according to the grantor’s wishes. While the trustee is responsible for supervising the trust, as the grantor, you maintain legal ownership of the property. In some cases, grantors appoint themselves as trustees. 

A primary reason people set up trusts is to lower the costs of owning property. For instance, a trust can decrease your tax liability and protect you from some legal trouble, such as lawsuits. The following are some types of trusts to contemplate when planning your estate: 

Qualified Personal Residence Trusts 

Qualified personal residence trusts (QPRTs) can be helpful during inflation or when interest rates are high because they feature split-interest transfers. Internal Revenue Service (IRS) provides actuarial tables, which dictate the assets that estate tax rules value and are defined by interest rates. In other words, when rates go up, the table valuations follow suit.

With a QPRT, you put the financial benefits of your home into a trust for your family, even while you still live there. The residence’s total value is relocated out of the property, but your continued ownership of the home will determine the residual gift. When interest rates are higher, the gift will be lower.

Grantor Retained Annuity Trusts 

With a grantor retained annuity trust (GRAT), you move assets into a trust but preserve an annuity repayment of a large percentage of the principal plus interest. If assets grow past the interest rate, they will transfer to the beneficiaries without incurring an estate or gift tax. GRATs are typically short-term estate planning strategies, but they can be worthwhile during periods of economic strain for two main reasons: 

  • Since asset values are decreased due to market volatility, moving stock shares into a GRAT can enable you to transfer more estate and gift tax-free money, should the investment return to its original value. 
  • The interest rates of GRATs are often referred to as 7520 rates, as this section of the tax code serves as their basis. Like other interest rates, 7520 rates are increasing, but remain low historically. 

Charitable Remainder Unitrust 

For those whose estate planning involves philanthropy, the charitable remainder trust (CRUT) can be advantageous. With a CRUT, you create a trust that provides annual distributions to you or certain beneficiaries for a set period. Any assets left at the end of this period go to charity.

Besides allowing you to achieve philanthropic objectives, this method may also present income tax benefits. When interest rates rise, more money is invested in charity — ultimately allowing for a higher income tax deduction the year you fund the trust. 

Consider Lifetime or Annual Exclusion Gifts 

If your estate plan includes making gifts, you may wish to use the lifetime or annual exclusion provisions of the gift tax. Due to the current market volatility, leveraging publicly traded securities to make gifts can be worthwhile, as these assets are experiencing a decrease in value. Although the cost of capital gain remains, if these assets revert to a higher value, your beneficiaries will reap the benefits, and you will incur no additional tax outside capital gains. 

Another advantage of the lifetime gift tax exemption and the annual gift tax exclusion is that both have been adjusted for inflation, meaning they will grow at an accelerated rate. See how these amounts have changed because of inflation:

  • The lifetime gift tax exemption: Shifted from $11.7 million per person in 2021 to $12.06 million per person in 2022 
  • The annual gift tax exclusion: Shifted from $15,000 per gift to one person to $16,000 in 2022 

Work with the Professionals 

Whenever making financial decisions, you should always think about working with a financial planner — regardless of current economic changes. General financial planners provide wealth management services, helping their clients establish goals and evaluating and tweaking their strategies on the path to financial freedom. 

You may also consult with an estate planner for specific guidance. These professionals offer their expertise to help clients determine the best methods for distributing their wealth to their loved ones. They also confirm that your assets are properly invested to preserve them during your lifetime. 

Attain Estate Planning Guidance at Park Place Financial 

Navigating personal financial stability throughout economic changes can be difficult, especially when handling such a complex task as estate planning. However, relying on financial planners can provide the peace of mind you need. 

At Park Place Financial, you can receive estate planning assistance from a certified financial planner dedicated to acting in your best interests. We have the knowledge and resources to guide clients through the entire estate planning process, from drafting wills to founding trusts. Our team utilizes financial strategies backed by hard-date and academically validated principles and adheres to our fiduciary duty in all dealings. Contact us today to learn more about estate planning services or obtain your complimentary financial checkup.  

**We have reviewed this material with the understanding the firm disclosure and
registered branch address and phone number is included with the material. Additional disclosures
are required if you are located in a bank or credit union. See firm policy for additional information.


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