Yes, Virginia, stock market performance can impact your estate planning.
You have money in the stock market.
Perhaps this is limited to your retirement income.
Maybe you have included savings plan with after-tax investments for long-term goals outside of retirement.
Either way, how the stock market performs is important.
According to a recent Wealth Advisor article titled “The Market Is Up 60 Percent Over The Last Four Years. How Does That Affect Estate Plans?,” both positive and negative turns can influence your estate plan.
The truth is the stock market has been performing incredibly well in the past few years.
Because of this, you may need to keep pay particular attention to your federal and state estate tax exemptions.
The federal tax exemption was set at $5 million back in 2011 plus adjustments for inflation each year thereafter.
When this happened, many estate planning attorney began creating joint estate plans for married couples and moved away from two-trust plans.
The goal was to provide more favorable income tax results and asset protection for those who resided in “tenancy by entirety” states.
This was a great strategy at the time.
If fact, unless there are palpable asset protection concerns (e.g., she is a surgeon and he is a stay-at-home dad) or a blended family matters, I still like the joint trust plan.
That is what Gretchen and I have.
What if your assets fell between $3 million and $5 million prior to 2016?
If yes, then the stock market may have placed your total sum above a $5 million federal exemption limit.
Because the federal exemption is now a little over $11.5 million, these plans should be suitable at this time.
The problem may present itself in 2026 when the exemption is set to fall to $6 million.
If your spouse were to die at this time and your assets exceeded $6 million, anything above the threshold would be taxed at 40 percent unless you made use of the “portability” approach to estate tax planning.
Through portability the $6 million exemption of both spouses could be utilized to save federal estate taxes up to $12 million.
But it is not automatic, so do not become complacent.
If your state also has a state estate tax, you need to be mindful (very mindful) of those limits.
Fortunately, neither Kansas nor Missouri has an estate tax or an inheritance tax.
If you are a married couple whose investments have performed well according to the stock market trends of the last few years, you may want to schedule an estate plan review with your experienced estate planning attorney.
Reference: Wealth Advisor (Jan. 22, 2020) “The Market Is Up 60 Percent Over The Last Four Years. How Does That Affect Estate Plans?”