At this time last year we could not have imagined a lot of what transpired in 2020. As a result, many Americans are experiencing high levels of anxiety surrounding issues of estate and financial planning. As we head into 2021, financial and economic experts predict three trends that may impact estate and wealth planning.
Low Interest Rates
First, experts believe the Federal Reserve will continue to keep the short-term interest rates low throughout the entire year of 2021. While this allows for more purchase power through lending strategies, the pandemic exposed issues like job insecurity which should be carefully considered. It will remain important to keep ample cash reserves and liquidity. Cash also puts you in a position to take advantage of opportunities should the market see a downturn.
Also, with low interest rates, it may be time to review your debt and look for refinancing opportunities. Americans refinanced at a record rate in 2020 and this trend is predicted to continue through 2021.
Federal Estate Tax Exemption
The second trend experts predict for 2021 is a big one that may impact estate planning. With the Georgia election runoffs landing in favor of the Democratic party, there will likely be some changes to tax policies sooner rather than later. The federal estate tax exemption (currently $11.58 million) will likely decrease to $5 million. This may not impact those with less than $5 million net worth, but those in the $5+million category need to reassess their wealth planning strategies in the first quarter of 2021.
It may be that a gifting strategy could be implemented to help preserve a portion of the $11.58 million exemption prior to its probable decrease. A gifting strategy may also include an irrevocable trust, spousal lifetime access trust (SLAT) or other types of charitable gifting. Your estate planning attorney and trusted financial advisor can help you review your assets to determine the best way to move forward knowing that this federal exemption may need to be taken advantage of sooner rather than later.
Retirement Policies
And lastly, the trend many financial and economic experts predict for 2021 is that there may also be sweeping changes to retirement policies. In November, the House of Representatives proposed a new retirement related bill referred to as the Secure Act 2.0. It may be voted on in 2021 and if the bill passes, it will increase the required minimum distribution age from 72 to 75.
Also, the Covid-19 pandemic caused some experts to predict that Social Security funds may run out earlier than originally expected. This may lead to an increase in people starting benefits at earlier ages than previously considered. This is a very critical and largely irreversible retirement decision and it should not be made lightly. Make sure that you discuss this in depth and review financial documents carefully with your financial advisor before you decide what age to start drawing Social Security benefits.
Now is the time to make sure that you have your estate planning documents in place, adequate insurance coverage, adequate cash reserves and you review your wealth planning goals and strategies in light of these new trends that are predicted for 2021. To get started contact Stouffer Legal in the Greater Baltimore area for a consultation.
