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Why is estate planning crucial in the face of inflation?

On Behalf of | Apr 5, 2023 | Estate Planning

In 2022, the annual US inflation rate increased by 6.5%. This led to staggering price increases, such as fuel costs spiking by 42%.

Inflation may be a fact of life, but it only highlights the importance of proper financial planning. A recent survey found that inflation is helping more Americans realize the value of estate planning. One out of four survey respondents indicated that they now see a greater need for estate planning thanks to inflation.

But while this represents a 3% increase in estate planning interest since 2022, two out of three Americans still don’t have a will.

How does inflation impact estate planning?

Regardless of how much cash you save for retirement, inflation can and will wear down your money’s value. But inflation isn’t always bad – your assets could increase in value down the line.

What can you do to stay on top of inflation?

Here are some tips that you can follow to mitigate the impacts of inflation on your estate planning:

  • Take time to reassess your plan – You might want to evaluate/re-evaluate your portfolio by looking at each asset, its current worth and any change to its value since the last time you reviewed it.
  • Reflect on how inflation affects tax liability – In 2022, the federal estate tax exemption was $12.06 million, which may be changed after 2025 to account for inflation. If your portfolio has any real estate, the increase in its value may leave your beneficiaries on the hook for the tax liability. You might want to consider irrevocable trusts and charitable trusts for your portfolio.
  • Consider diversifying – A portfolio that lacks diversity is inflexible and will be prone to disruption. You might want to spread your investments across different vehicles, including bonds, stocks, and even insurance.

When in doubt, you can also turn to a professional to help you with your estate planning. Inflation may be a persistent issue to grapple with, but a well-designed financial plan can help you and your family roll with the economic punches.