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Estate Planning Moves in A Recessionary Economy

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As we all know, the United States has experienced what has come to be known as the “Great Recession” over the past few years. For many people, this means that home values have plummeted as have stocks and other investments. While there is no way to view this in a positive light, there are some estate planning moves that you can make during a recessionary economy that can have long term benefits for you and your loved ones. Consider the following:

  • Creating a GRAT—a Grantor Retained Annuity Trust is an estate planning tool that offers a number of benefits if structured and funded properly. Although a GRAT is a complex tool, the basic concept is that assets are transferred to the trust for a specific period of time. At the end of the trust term, they are then transferred to beneficiaries without paying taxes on any increase in value. Stocks, for example, that have decreased in value but that are expected to rebound might be a good funding option for a GRAT right now.
  • Converting a traditional IRA—a traditional IRA requires you to pay tax on the amount you contributed to the IRA when you convert it; however, if the value of your traditional IRA has decreased, now may be the time to convert it to a Roth IRA since you will pay less tax on the conversion. Unlike a traditional IRA, a Roth IRA will then continue to grow tax-free.
  • Making gifts—the tax rules for gifts are complicated, but in most cases you are potentially responsible for taxes on the gift based on the value of the gift at the time it is gifted. Therefore, gifting assets that have temporarily decreased in value may be a smart estate planning move during a recession.
Charlie Amen
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