How the Stock Market Can Change Your Estate Plan

A new tax law isn’t the only reason to revisit your estate plan.

The stock 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 changes in the stock market might affect your estate plan.

As you know, 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.

Let’s look at an example.

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 in the stock market, 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.

Stock 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.

• Stock market fluctuations after the estate is settled also can cause problems. 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. Keep in mind, though, 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. You could save thousands of dollars by waiting a few years to implement a strategy or by implementing a strategy quickly before market changes occur.

Also, a strategy that you might have 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 have more on this subject in future issues of Retirement Watch Weekly.

For further reading on my estate planning strategies, click here to read my newest research: 7 Secrets for a Richer Retirement.

Publisher’s note: My colleague Bryan Perry is not only an expert hi tech trader, he owns an incredible win rate of 87%. So if you’re interested in fully funding your retirement plan, I insist you join Bryan for his upcoming online broadcast: Retire on 5G, and learn how you can turn even modest investments into 5X to 10X your money. Click here to sign up, 100% free.