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Fluctuating rates can impact estate planning strategies

Interest rates are crucial to economic activity because in one way or another, they touch almost every component of the economy. For example, if a person wants to purchase a home, they will usually do so by first borrowing money to pay for the bulk of the purchase price. The interest rate on that loan will affect the amount of the borrower's potential monthly payment. Likewise, interest rates affect payments on car loans, credit cards and almost every other kind of debt.

In the same way that interest rates affect consumer debt, they can also affect savings and investments. People in Lakeland and Winter Haven who have money in savings accounts will earn more or less on those deposits as interest rates fluctuate.

Given the immense effect that interest rates have on people all over the U.S., it was big economic news when the Federal Reserve recently announced that it was raising its benchmark interest rate. Because interest rates can impact the value of a person's debts and their assets, a change in rates might also mean that a person should review their estate plan.

A fluctuation in rates can make some estate planning strategies more appealing than others. When rates are rising, for example, the present value of future lump sum payments decreases; this can affect taxable gifts that a person plans to leave to their heirs. A qualified personal residence trust is one way that a person can take advantage of rising interest rates through their estate plan. This kind of trust allows the grantor to gift their primary residence to their heirs, while still keeping the right to live in the residence during their lifetime. This is beneficial when rates are on the rise because the present value of the residence is lower, which means that the tax that the heirs will ultimately pay on that gift is lower.

Estate planning is not a static endeavor because a person's plan may need to change according to the changing circumstances of their life. Moreover, an estate plan may also need updating based on other factors like economic changes. An experienced estates and trusts attorney can help Florida residents with updating and drafting estate planning documents to fit their particular needs.

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

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