a bear market in stocks may be painful but it can create the right circumstances for estate planning last year us stocks reached bear market territory which is defined as a drop of 20 in value from recent record highs the markets aren’t out of the woods just yet with the dow jones industrial average down 4 for the year through monday and the broader sp 500 up a slight 042 according to dow jones market data no one likes lower stock prices but they do enable shareholders to transfer the future appreciation of stocks into the hands of heirs and out of an estate says susan hirshman director of wealth management at schwab wealth advisory in san francisco also when stock prices are lower any transfer to heirs uses up less of the federal estate tax exemption hirshman says currently the us government allows individuals to transfer us1292 million taxfree over their lifetime or as part of their estate “we’re always looking for opportunities to transfer wealth in a more tax efficient way” she says transferring assets to heirs is one simple way to capitalize on a bear market but there are also more sophisticated ways hirshman says penta recently spoke with hirshman about a range of forwardlooking estateplanning options to consider when stocks are slumping estate planning by its nature goes beyond personal wealth to the overall wealth of a family and that fact is important to consider when there are shifts in the direction of markets older individuals and couples for instance could look for ways to assist their children when stocks take a nosedive one of hirshman’s clients has an adult son who works for a technology company and who relied on the company’s stock to fund his family’s lifestyle as is the case with many tech companies the stock had suffered a big decline the client “was lamenting that his son was upset that he needed to use his stock when it was at such a low value” hirshman says and he wanted to know if there was a way he could help it turned out the son was funding private school for his three children through his company stock schwab suggested the parent who had excess funds step in to pay the tuition by dealing directly with the institution the tuition wasn’t considered a gift for estate tax purposes the parent also chose to pay concierge healthcare for one of the grandsons who has an autoimmune disease which again wasn’t considered a gift since payments were made directly to the provider another client routinely gifted appreciated securities to charity but the value of his securities wasn’t as high as usual given last year’s market downturn hirschman says because the client was more than 70andahalf years old he was receiving a required minimum distribution or rmd from a large individual retirement account ira that he didn’t need to live on schwab suggested the client consider taking a qualified charitable deduction from the ira which is allowed up to us100000 this strategy accomplished two things first it allowed the client to give what he wanted to charity hirshman says second it reduced the amount of his ira and therefore the amount of his rmd which is taxed as income “i’m saying ‘let’s look at your situation and are there better ways to be doing things that you traditionally do’” hirshman says “it’s not always about you” she adds “it’s about your family it’s about community” a more complex strategy wealthy clients can use is a grantor retained annuity trust or grat which allows clients to transfer future appreciation in a stock to their children by freezing its value an example hirshman offers is of a client who had a big concentration in facebook parent meta platforms meta’s stock price tumbled this past fall to a low of us8891 a share on nov 3 the client was able to act fast to set up a grat funded with his meta shares she says with a grat the value of the assets return to the grantor when the trust expires leaving the appreciation out of the grantor’s estate and in the hands of beneficiaries during the term of the grat the client receives an annuity payment equal to the amount put in the trust plus appreciation up to an irs interest rate any appreciation over that rate goes to heirs when the trust expires today meta is trading for about us192 a share but this appreciation in the stock’s value above the stated interest rate—which was around 43 when the trust was established—is out of the client’s estate hirshman says “in the ultrahighnetworth world a lot of times it’s really being very cognizant of what your balance sheet looks like” she says clients also have different views some she says care more about retaining control over their own assets than estate planning aside from capitalizing on bearmarket conditions wealthy clients also have to think about how they will be affected when provisions of the tax reform act enacted in late 2017 expire in 2025 including the increase in the estate tax exemption while the exemption for an individual is us1292 million this year it will likely be half that by 2026 if the current provision in the law is allowed to sunset “for the last several years even sophisticated estate planning was more an ultrahighnetworth conversation” hirshman says “now that in 2026 it’s going to halve it’s becoming more of a highnetworth conversation again” while the future of the law may be unknown hirshman says it’s important for clients now to get educated about the potential change and to build flexibility into their planning knowing what might be possible the best strategy she adds is to “plan with what you know today”