Estate planning is built around the hope that you can maximize your life earnings and assets in a way that not only benefits you but makes life better for the future generations of your loved ones.
But with all the uncertainty, economic fluctuations, and predictions of deflation happening in light of the COVID-19 pandemic, you might be wondering how to move forward with confidence in St. Lucie, Florida? After all, many estates thrive on the assumption that their values will increase over time. In other words, many estates rely on the hope that their investments will be worth more in the future than they are today.
From the 1930s until today, this assumption has been a reliable guiding light for estate planning. However, the recent outbreak of the COVID-19 pandemic has thrown everything up in the air.
Many economists are predicting that deflation could be looming on the horizon, but it’s difficult to say when exactly and what aspects of the economy will be hit hardest.
Planning for both possible deflation and inflation
When planning for the unknown, the key is flexibility. And thankfully, there are a lot of options to work flexibility into your estate planning. Ideally, your estate will be protected and prepared enough to stand the tests of time, whatever happens. And because deflation and inflation are both possible variables, it seems as if estate planning today must account for both inflation and deflation. But how? How can you plan your estate in such a way that you minimize the risk of being hit by deflation but also prepare to benefit from inflation if possible? Experts at Forbes offer the following tips:
- Strategy 1: Gifting tax-free assets now. Try to choose assets that will not be affected by deflation. Forbes suggests gifting a diverse stock and bond portfolio and making your selection based on how likely they are to recover their value after falls in the recent market.
- Strategy 2: Using flexible trusts. Having a trust with flexible provisions means you can recover assets you need if your estate’s value begins to decline, but also retain the income from the assets excluded from your estate. You can do this through a specialized disclaimer that instructs a trust protector or other officer to direct the asset back to you as the donor. Another option is to use a Qualified Terminable Interest Trust (QTIP) for the gift. This means you will have until the date the gift tax return is filed (plus extensions) to decide if you will keep the assets in your estate or not.
- Strategy 3: Gifting through trusts that remain flexible. When gifting through a trust, the disclaimer referenced above can be utilized to permit you to substitute property (of either equal or greater value) for assets in the trust. This strategy can come in handy if (or when) assets decline in value.
- Strategy 4: Freeze your estate’s value. If done properly, this strategy can still allow you some return. If you make a gift as a Grantor Retained Annuity Trust (GRAT), you can gift assets and receive annuity for a set time. If values increase during the GRAT, the appreciation is passed to the beneficiary tax-free. If value declines, it returns to you. Another option is selling the assets to a grantor type trust and taking back a promissory note. This will count as a completed transaction for gift tax purposes, but not income tax purposes. This path allows you to recover the current value of assets in the future if you need to. If you own residential property, you could make a gift to a Qualified Personal Residence Trust (QPRT). This means you have the right to live at the residence (rent-free) for a set time period. When the term runs out, you will have the option to purchase the property back from the trust if you wish to continue living there.
Planning your estate in St. Lucie can be challenging even in times of much greater certainty and stability than we are facing now. With so many decisions and variables, creating a strong estate plan can feel overwhelming. If you want help evaluating the best decisions for your estate, our legal team is available to assist with your best interests in mind. If you’re concerned about meeting in person due to COVID-19, we are happy to offer video consultations for your health and convenience. Our motto is “Serving Treasure Coast Seniors and Those Who Love Them” and you’ll see that promise come to life with our dedicated service, personal attention, and commitment to the wellbeing of you and your loved ones.
Get started today by calling our St. Lucie office at 772-878-7271 or messaging us online.