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Good Estate Planning Opportunities In Bad Markets

  • On behalf of: The Hughes Law Firm, P.C.
  • Published: March 30, 2020

It hurts when the markets turn bad. No one feels good when their stocks, investments and retirement funds suddenly deflate. But the news during volatile markets isn’t all bad. There are some golden opportunities for those who know where to look.

The key, as Barron’s notes, is to adjust your approach. Instead of bailing out of the market, taking your losses and finding yourself in a worse position when the market recovers, you can take advantage of your depreciated assets. Take the long view. And, in the end, you may end up ahead of the curve.

The good side of depreciated assets

There’s little reward to a bad market if you’re living day-to-day off your dwindling retirement fund. However, the more you have and the more patient you can afford to be, the more you can afford to let your depreciated assets sit and recover. You can look for—and take advantage of—the good side of their depreciation.

Several of the better ways to take advantage of depreciated stocks tie to your estate plan:

  • Gifts. You can only gift a certain portion of your wealth each year, but when your stocks have cratered out, you can gift a greater number of them. Assuming those stocks recover when the market recovers, you and your family come out ahead.
  • Family loans. The law says you need to structure your family loans with formal promissory notes and an interest rate, but when the markets turn bad, those interest rates get lower and lower. Such loans can be particularly valuable if your family members can earn returns on their investments that outpace the exceedingly low interest rates.
  • Grantor retained annuity trust (GRAT). This tool is commonly used by wealthy families to avoid taxes while passing their assets to their heirs, and it works best when you can fuel it with low-priced stocks and low interest rates.
  • Roth IRAs. While Roth IRAs are generally better for your family in the long-term, people often hesitate to convert their traditional IRAs into Roth IRAs. This is because they must pay taxes when they make the conversion. However, that tax hit stings less when your stock values are lower, making this a great time to focus on the greater long-term gains.

Naturally, which of these options—and how many of them—may be best for you depends on your circumstances and your goals.

No miracles

You can’t part the clouds and bring out the sun. And you can’t kickstart the market on your own. You can, however, look to make the most of the current situation. Much of it is a matter of perspective.

For those with enough patience and an eye to their long-term goals, the volatile markets may offer bittersweet rewards. This may not be a great time all around, but it may be an excellent time to meet with your attorney and review your estate plan.

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