Inflation And Your Estate Plan

Unlike many other areas of the law that deal with contracts or documents, estate planning is unique in that while the documents you draft are effective once they are legally executed, they may not be needed, or used, for years.

Looking to the Future

Even if the person making the estate plan is at the end of his or her life, the assets left to family or other beneficiaries may not be used for many years.

Imagine, for example, leaving money for college to a child who is, right now, only 10 years old. Or, imagine leaving money for a new home to someone who is only a teenager right now (all of these future conditional gifts can be accomplished by way of a trust, with the proper conditions put on them).

Inflation is a Given

One thing about the future that is certain, is that it is often uncertain. But if there is something we know will happen, it is that the price of everything will go up over time, by way of inflation. Despite that knowledge, you would be surprised how many people, when they make an estate plan, don’t account for it.

Imagine our scenario above, where you leave, say, $60,000 for someone who is now a small child, to attend college when he or she gets older. That $60,000 may not cover a full college education in 8-10 years, when prices go up. And you’ve already seen how the prices of housing, but purchasing and renting has gone up in the last 5 years alone.

When Values go Up

Note that inflation isn’t always bad—if you’re leaving property to someone, inflation will, over time, increase the value of that property, or any other assets that you are leaving to someone in the future.

But this could also have a negative effect, if you are close to the estate tax threshold. Estates that border on the estate tax minimum (which changes often, but is currently set at about $13 million), may need to monitor assets that increase in value. Alternatively, you can include some depreciating assets in your estate, to offset any gains.

What You Can Do

One thing that you may want to do, is work with a financial advisor, to leave funds or money in an interest bearing account, and then leave the account to beneficiaries via will or trust. This way, the interest can offset the increased cost of inflation.

If possible, you can leave more than needed for a given purpose—for example, leaving more than what you think college may cost in the future—with a provision in your estate plan documents for what will happen to the “overage,” in the event that you left too much for the stated purpose.

Questions about how inflation may affect your estate plan? Call the Torrance will and estate attorneys at Samuel Ford Law today for help.

Sources:

thestreet.com/retirement-daily/your-money/estate-planning-inflation

law.com/thelegalintelligencer/2023/02/04/estate-planning-in-a-high-inflation-environment/