How Does a Bull Market Affect My Estate Plan?

How Does a Bull Market Affect My Estate Plan? A great year in the stock market was so impressive that it should raise estate planning concerns, especially among married couples. In 2010, the federal estate tax exemption was increased to $5 million and is adjusted for inflation. When President Trump was elected in 2016, the stock market was at about the same spot it was 1999, and no one had any notion that it would grow so much.

Wealth Advisor’s recent article entitled “The Market Is Up 60 Percent Over The Last Four Years. How Does That Affect Estate Plans?” says that because of this $5 million federal estate tax exemption, many estate planning attorneys moved from a two-trust estate plan to joint plans. Those plans saw better income tax results for heirs and often produced asset protection benefits for those living in “tenancy by the entirety” states.

This all sounds well and good for many. However, for all those with estate plans and more than $3 million and less than $5 million before 2016, the question was how did those significant market gains affect their estate planning?

A quick answer is that the federal tax exemption is now a little more than $11.5 million, so those couple’s plans should be solid. However, things aren’t that easy because the federal estate tax exemption is set to drop to $6 million in 2026. We also don’t know if another change will appear in the interim.

The real issue is that when you begin to think about the sad possibility of what could occur if one spouse were to die. If that became the case, then, when we get to 2026, any dollar over that $6 million threshold may be taxed at a 40% federal estate tax rate. It only gets worse if the surviving spouse lives in a state that imposes its own estate tax.

Since the market has done so well over the past several years under President Trump, some married couples who executed or updated their estate plans over the last decade and are now using a joint plan, may need to have their plans reviewed.

Talk to a qualified estate planning attorney to see if there are any costly federal and/or state estate or inheritance tax consequences that might be a surprise for the surviving spouse or loved one’s downline.

Reference: Wealth Advisor (Jan. 22, 2020) “The Market Is Up 60 Percent Over The Last Four Years. How Does That Affect Estate Plans?”

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