Changing Interest Rates And Estate Planning

Many things can trigger a need to update one's estate plan. One such thing are changing economic conditions, like a change in the interest rate environment. Here in the United States, we are in the midst of such a change, as recent moves by the Federal Reserve appear to be ushering in a time of rising interest rates.

Why does interest rate environment matter when it comes to estate planning? It matters because it can have tax implications for certain types of estate planning mechanisms. For example, what tax effects different kinds of trusts end up having can be impacted by prevailing interest rates at the time the trust is established.

Due to the differences between the various sorts of trusts, when it comes to tax implications, some types of trusts tend to be particularly well-suited for low-interest-rate environments while others can be particularly helpful in high-interest-rate environments. According to a recent Wall Street Journal article, generally, grantor retained annuity trusts fall into the former category while charitable remainder annuity trusts and qualified personal residence trusts fall into the latter.

Tax implications can have major impacts on what types of estate planning devices would be best able to achieve a person's goals for their estate plan. This is why a changing interest rate environment could potentially bring about a need to make adjustments to one’s estate plan.

Individuals who are wondering if they should update their estate plan in relation to changing interest rate environment or other changes in economic environment should have a discussion with an experienced estate planning attorney. Such lawyers can review the setup of one's current estate plan and give guidance as to what impacts changing economic conditions might have on the plan's effectiveness and whether an update would be wise.

Source: The Wall Street Journal, "Estate Planning: How to Adjust to Rising Rates," Veronica Dagher, Dec. 23, 2015

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