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 A new tax law isn't the only reason to revisit your estate plan.
Investment market and interest rate changes can alter the effects of many estate plans, often without their creators knowing the consequences.
Here's a guide to how investment market changes might affect your estate plan.
The values of many estates change with fluctuations in the stock market. That can be important if your will leaves specific dollar amounts to individuals or to charity.
Suppose your will leaves $50,000 to charity, which two years ago was no more than 10% of your $500,000 in liquid assets.
But you invested aggressively, the market went against you, and your portfolio is down by 30% to $350,000.
Now, the charity would get about 15% of your assets. More importantly, your survivors would get about $315,000, instead of the $450,000 you intended.
In a variation, suppose you have two IRAs at different fund companies.
They had similar balances two years ago, so you named one child as beneficiary of one account, and the other child as beneficiary of the other IRA.
But the IRAs were invested very differently and now there is a 20% difference in the values of the two accounts.
Market fluctuations are a good reason not to leave simple, specific bequests in your estate plan.
Instead of leaving specific dollar amounts, use an equation setting upper and lower limits on a bequest.
For example: "Charity A gets $50,000 or 10% of my estate, whichever is less." Instead of leaving specific accounts or assets to beneficiaries, leave them comparable values or percentages of your estate.
Let the executor decide whether to give specific accounts to each beneficiary or to sell assets and distribute cash. Or let the heirs choose.
Designate a specific asset only when there is something unique about it such as art, antiques, jewelry, heirlooms, a family business, or items of personal significance.
In the example of the two IRAs, you could have named each child as equal co-beneficiary of each IRA.
Let them split the IRAs after they inherit. Or you could have invested them the same way. | | | Have you seen my number one value stock to buy right now? If it's not on your radar, it should be. It's beginning to remind me a lot of Weight Watchers, which jumped 389% in 2017… and this stock could easily TRIPLE those returns!
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Suppose some heirs get assets while others get cash.
If the assets appreciate significantly, those who received cash will be unhappy.
But if the assets decline, those who received the assets will complain.
Consider making everyone equally subject to asset fluctuations, or the executor should sell assets and distribute only cash.
Deductions and valuations for strategies such as charitable trusts and qualified personal residence trusts vary with interest rates.
Estate planning strategies that become more attractive after interest rates increase are charitable remainder annuity trusts and qualified personal residence trusts.
But charitable lead annuity trusts are more attractive as rates decline.
A grantor retained annuity trust also is more valuable with lower rates.
The list goes on. The benefits of strategies increase or decrease with interest rates, depending on the strategy.
When implementing an estate plan, keep an eye on interest rate trends.
Also, a strategy that you rejected a few years ago might be more attractive now because of market changes.
Estate executors also should follow the markets.
Generally, assets in an estate are valued as of the date of death of the owner, and estate taxes are based on that value.
But the law provides for an alternate valuation date of six months after the owner's death.
That's something to keep in mind for the any executor
Choosing the alternate valuation date could save a bundle in taxes if asset values take a tumble.
Market interest rates also affect the benefits of low-interest or no-interest loans to family members.
I'll discuss this topic more in depth in future issues of Retirement Watch Weekly. | | To a better retirement,
Bob Carlson
Editor, Retirement Watch Weekly | | | PS: For more estate planning advice, secure your copy of my step-by-step workbook, To My Heirs: A Book of Final Wishes and Instructions. Claim your copy here. | | | I wish I had news about a vaccine for this deadly disease, but that still looks a long way off. But this is certainly the next best thing… a "cure-all" for the daily damage Coronavirus is doing to your retirement prospects.
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Check out my website, RetirementWatch.com, where you'll find hundreds of free articles covering every aspect of retirement planning.
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How to Avoid Inherited IRA Disasters | | About Bob Carlson:
 Robert C. Carlson is the author of the books The New Rules of Retirement and Retirement Tax Guide, editor and investment director of the popular retirement newsletter, Retirement Watch, and editor of the free weekly e-letter, Retirement Watch Weekly. Bob is a frequent speaker at investment conferences around the country, and you can also hear Bob as a featured guest on nationally-syndicated radio shows, such as The Retirement Hour, Dateline Washington, Family News in Focus, The Michael Reagan Show, Money Matters and The Stock Doctor. | | | | | |
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