4 Ways Inflation Can Change Your Estate Planning
Written by
Chris Ozarowski
Edited by
Molly Sullivan
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Inflation doesn’t just impact your grocery bill and mortgage payments; it can also reshape your estate plan. Rising costs can increase asset values, legal fees and life insurance alongside your everyday living costs. In times of steep inflation, it’s a good idea to reevaluate both your estate and retirement plan to protect the legacy you want to leave.
So, dust off your estate planning attorney’s card and break out your legal documents. Here are several ways inflation might reshape your planning and concrete ways you can respond.
Eroded Purchasing Power for Bequests
One of the most meaningful goals in estate planning is ensuring your loved ones are financially supported. But as inflation drives up the costs, the money you leave behind may not go as far as you intended. A fixed sum that once seemed generous might now fall short.
If your estate plan includes set dollar amounts for your beneficiaries, it’s worth reviewing whether those figures still hold up. Adjusting them to reflect today’s cost of living can help preserve their impact.
To help your bequests keep pace with inflation, consider including assets with growth potential, such as index funds or real estate. These can help your estate grow over time, offering more lasting support. Talk to a trusted financial professional to align these investments with your risk tolerance and long-term goals.
Higher Costs for Legal and Advisory Services
Estate planning usually involves professionals, including attorneys, accountants and possibly appraisers. Inflation can raise their fees, which means you might pay more to create or update essential documents such as wills, gift taxes, powers of attorney or various living trusts. Paying more now means your beneficiaries receive less later.
To keep costs low, ask for estimates from multiple attorneys or planning firms. You could discover that some offer flat fees or lower rates for common tasks. Moreover, aim for one or two thorough updates every year — unless a big life event happens, such as a marriage, divorce or major asset purchase — instead of minor tweaks every few months.
Rising Asset Values and Increased Tax Exposure
Inflation can push up real estate and stock prices, which might raise your estate’s total value. While that can feel like a win, it may also trigger higher estate taxes. The thresholds for the federal estate tax are adjusted yearly, but they may not keep pace with rising asset values. This gap could create a tax burden on your heirs.
Moving assets to loved ones while you’re alive can reduce the size of your taxable estate. This might help you stay under certain tax thresholds, depending on the rules at the time. Irrevocable trusts, like a spousal lifetime access trust or a grantor trust, can move appreciating assets out of your estate. That lowers potential estate taxes, though these structures usually come with legal fees and formalities. Work with an estate attorney and tax professional who can track changes in tax laws and make sure you use the best strategy for your circumstances.
Greater Strain on Healthcare and Long-Term Care Planning
Healthcare costs keep climbing. If your plan includes paying for a loved one’s medical expenses or covering your own long-term care, inflation can eat away at set-aside amounts. You don’t want to find out too late that these reserves won’t be enough.
Some policies can help pay for extended care at home or in a facility. Though premiums can be steep, coverage could prevent your heirs from tapping into core assets. Make sure you have documents like healthcare powers of attorney and living wills set up in advance.Â
When combined with trusts or designated accounts, these documents can guide how medical costs are paid. Try to estimate how much long-term care might cost in your region. If you expect expenses to double over a certain period, plan accordingly.
Caitlyn Moorhead contributed to the reporting for this article.
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