Market downturns can cause significant anxiety for many investors, particularly older adults who seek to preserve their wealth and financial security. However, when it comes to estate planning, lower asset values can work in your favor. Volatile markets offer a chance to shift wealth, reduce taxes and strengthen your long-term financial legacy—if you plan strategically.
Taking Advantage of Lower Asset Values
When markets dip, the value of stocks, real estate and businesses may temporarily drop. This reduced value can be a helpful tool when transferring assets to family members or trusts. Gifting an asset when it’s worth less means you can transfer more shares without exceeding the annual or lifetime gift tax limits. If the asset rebounds in value later, your heirs benefit, and the growth stays out of your taxable estate.
Similarly, converting a traditional IRA to a Roth IRA during a market slump can result in lower taxes. You’ll pay tax based on the current (depressed) value of the account. Once the market recovers, the growth in the Roth IRA continues tax-free. Roth conversions can be particularly beneficial for individuals planning to leave their retirement accounts to beneficiaries.
Leveraging Trusts During Uncertainty
Certain trusts become more attractive in volatile environments. Grantor Retained Annuity Trusts (GRATs), for example, allow the grantor to pass future appreciation to heirs with minimal or no gift tax if the investments outperform a set return. When asset values are low, there is a greater potential for appreciation, making GRATs more effective.
Charitable Lead Trusts and Intentionally Defective Grantor Trusts (IDGTs) can also provide income tax or estate tax advantages, depending on your goals. These tools may sound complex. However, they’re designed to lock in tax savings while supporting your estate plan.
While trusts require careful drafting, they offer strong protections, especially during uncertain times. You can reduce estate taxes, avoid probate and control how and when beneficiaries receive assets.
Review Your Estate Plan to Rebalance Asset Distributions
Market volatility is also a good reminder to review your estate plan. Assets may have shifted in value, which can affect how fairly or equally your estate will be distributed. You may need to rebalance the remaining funds to children, charities, or other beneficiaries.
It’s also essential to revisit your documents. Does your will or trust still reflect your wishes? Are your powers of attorney up to date? Has your financial situation changed since you last met with your attorney?
Your estate plan should evolve in tandem with your assets. By taking the time to review it during a period of volatility, you ensure that your plan remains aligned with your values and your family’s needs. When you revisit your finances, be sure to reach out and reevaluate your estate with an estate planning attorney.
Key Takeaways
- Understand opportunity: Market downturns can create opportunities to transfer wealth at reduced tax cost.
- Trust benefits: Lower asset values make it easier to gift or fund trusts without hitting tax limits.
- Use the right tools: Volatile markets enhance the effectiveness of estate planning tools, such as GRATs and Roth conversions.
- Maintain fairness: Rebalancing your estate plan ensures fair distribution as asset values change.
Reference: Barron’s (May 24, 2025) “Estate Planning Is Tricky. How Volatility Can Actually Help”