02-04-2025
3 Estate Planning Moves To Make To Protect Your Wealth as Recession Looms
Several indicators seem to be signaling that a recession is near. A measure of consumer confidence fell to its lowest level in 12 years, reaching a figure that has historically come before a recession, NBC News reported. Additionally, a nationwide survey of chief financial officers conducted by CNBC found that 60% expect a recession in the second half of the year.
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Whether or not a recession hits remains to be seen, but it's always best to be prepared for the worst — especially when it comes to your plans for passing down wealth. Here are the estate planning moves you should consider making to protect your wealth and take advantage of a potential market downturn.
When asset values drop, you can gift more within the annual tax-free limit.
'Gifting assets to heirs is especially advantageous during a market sell-off,' said Leslie Thompson, CIO and co-founder of Spectrum Wealth Management. 'Lower valuations allow individuals to transfer more shares while staying within the annual gift tax exclusion, which is set at $19,000 per recipient in 2025, or using less of their lifetime exemption. This allows heirs to benefit from future appreciation outside of the donor's taxable estate and reduce possible future estate taxes.'
Consider using tools like grantor retained annuity trusts (GRATs) and donor-advised fund (DAFs), which can be very effective in volatile markets.
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Lower account values mean lower taxes on Roth conversions.
'Roth conversions provide another valuable strategy when markets are down,' Thompson said. 'Converting pretax retirement funds to a Roth IRA results in lower taxable income, since taxes are based on the asset's value at the time of conversion. Once converted, the assets grow tax-free and can take full advantage of market recovery.'
Estate freeze techniques can be used for tax savings during economic downturns.
'Estate freeze techniques such as grantor retained annuity trusts or intentionally defective grantor trusts shift future appreciation to heirs while minimizing taxable values at the time of transfer,' Thompson said. 'This results in lower gift tax implications at the time of the gift and shifting future growth outside of the donor's estate, helping preserve wealth across generations.'
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This article originally appeared on 3 Estate Planning Moves To Make To Protect Your Wealth as Recession Looms
