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Increasing interest rates may impact your estate planning

At present, New Jersey residents are enjoying relatively low interest rates thanks to previous decisions made by the Federal Reserve. However, it appears that in the not-too-distant future the Fed may be raising rates to higher levels. These increases could have an impact on the value of the estate plans that some people have chosen to create.

There is good news, however. Individuals who may see their estate planning strategies affected by increasing rates can take proactive steps to minimize the impact of this economic move. The remainder of this blog will discuss several ways an estate plan can be shifted to accommodate changing interest rates.

One way that individuals can work within their estate plan to avoid interest rate hikes is to make loans to their family members. Loans to children, grandchildren, and other relations are required to carry interest, but those rates are relatively low. By making a loan to a family member and having that family member use the loan for an investment, an individual allows the recipient of the loan to earn value from the applicable investment's returns as well as avoid taxes associated with making gifts to loved ones.

A second way that a person could avoid the asset depleting increase in federal interest rates is to utilize a special type of charitable trust called a charitable remainder annuity trust. These trusts effectively transfers wealth to charities while providing income to the trust creators. Attorneys who practice estate planning law can help their clients identify these and other testamentary devices to minimize the impact of increasing interest rates and protecting their wealth.

Decisions made at the national level can affect how a personal estate plan in New Jersey is implemented. Changes in interest rates may have deleterious effects on high value estates. Steps can be taken, however, to work around these changes and preserve the value of New Jersey estates.

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

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