Gregory Womack, president and principal of Womack Investment Advisers, a wealth management firm, says “strategizing your estate is never a simple task. But compounded by bear markets and volatile economics, it can become a long and complex process riddled with unexpected pitfalls.”
This isn’t always a bad thing. Savvy investors understand that economic fluctuations provide a nugget of opportunity in the midst of murky uncertainty. Depressed markets may indicate a better time to buy or hold mispriced securities, prompting the conversion of certain assets before markets begin to rally.
While obviously complicated and skirted by risk, market fluctuations pose an excellent opportunity to plan out your financial legacy. Let’s explore some simple steps to do just that, considering ways to protect your nest egg from tenuous economic conditions.
“Planning for the future of your assets is critical — both for today, tomorrow, and the generations to come,” says Mr. Womack. “Regardless of your net worth or income, it’s important to prepare on all fronts to make the most of your funds in an economic downturn.”
Here are five ways to get started.
1. Reduce Tax Liabilities
The higher your tax bracket becomes, the less money you can retain — and the less time it has to grow under the magic of compound interest. It’s a good idea to limit your risks and shelter your nest egg from excessive tax liability.
To do this, you may want to:
- Contribute as much as possible to retirement plans like traditional IRAs or Roths (more on this later)
- Lean into tax credits for children, healthcare spending accounts, and retirement accounts
- Get involved with employer-sponsored savings accounts for children and healthcare
Chat with a trained estate planner to get additional tips for limiting tax liabilities.
2. Consider Roth Conversions
Not every retirement account makes sense for intergenerational wealth. In fact, options like traditional IRAs limit the generational benefits of a retirement account to just 10 years — meaning all funds must be withdrawn before time is up. This defeats the purpose of a gifted retirement account and prevents assets from passing down to multiple heirs.
Converting your retirement assets into a Roth account avoids these limitations while sidestepping marketplace fluctuations. Roth IRAs grow 100% tax-free and do not have a time limit on withdrawals. Your future generations will have access to family funds without worrying about growing tax brackets — or worse, a limit on compound interest.
3. Create Gift Assets
Depressed assets are worth less for a short while, but the promise of market growth ensures a bright future for heirs and loved ones alike.
This is where gifting comes into play.
Let’s say you own 100 shares of a business worth $150 each, although, before the marketplace downturn, they were valued at $300 each. You can gift all 100 shares to an heir without paying the gift tax liability, which applies to endowments over $15,000.
Economic downturns don’t last forever. In five years, your heirs see their shares grow back to their initial $300 value — growing by a factor of 200%.
Your $15,000 gift just became a $30,000 legacy.
4. Chew Over Moves
Estate planning must be set enough to accomplish an overarching mission, yet agile enough to avoid emergent risks.
It’s best to move slowly, considerately, and methodically while planning your estate. Don’t make any rash decisions without thinking about them first, and consider a second pair of eyes to look over your plans — including professional advisement.
5. Get Professional Advisement
“Professional estate managers are worth their weight in gold,” says Womack. “You have the opportunity to plan your financial legacy exactly the way you want to without braving the storms of economic downturn alone.”
Rather than standing in the way of financial literacy, financial advisors act as a supportive arm to your executive decision-making. Highly skilled experts do everything in their power to streamline the planning process from beginning to end.
Be sure to select a professional who represents you and your values, and genuinely cares about the success of your legacy.
Adopting Strategies For The Future
In an uncertain era of economic volatility, there is no way to predict the speed of market fluctuations. It’s best to approach financial strategies from multiple points of view and align with all best practices to exceed financial goals.
Start by working with variables you can control. Reduce your tax liabilities to maintain more of your nest egg, then convert your IRAs to Roths to pass assets from generation to generation. You may want to consider gifting assets directly to leave a standing financial legacy.
Finally, it’s essential that you move slowly and confidently with all financial moves. Partnering with a professional estate planning attorney keeps you ahead of the curve and ensures the safety of your assets during unstable trends.
The solution to market fluctuation is clear: move slowly, think carefully, and most importantly, seek professional help. You owe it to yourself — and your heirs — to defend your family’s resources from the challenges ahead. Doing so will make the most of your hard-won assets, and leave behind a financial legacy that survives long into the future.
About Womack Investment Advisers
Womack Investment Advisers (WIA) provides counseling, coaching, and resources to address financial planning and wealth building to its clients. Established in 2000, the company provides expert financial advisory services and is independent of other organizations.
WIA is an independent registered investment advisor serving clients in Texas, Illinois, Indiana, California, and Oklahoma.
To learn more about WIA, you can visit their website at https://www.womackadvisers.com/