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Guarding Your Estate Plans Against the Impact of Inflation

Updated: Jul 14

How to protect Estate Plans against Inflation
Guarding Estate Plans Against Inflation

It seems the word “inflation” is on everyone’s lips these days. While some experts believe our current inflation trends are the temporary result of pent-up pandemic demands, others worry we are on a trajectory of inflation that could last years. Time will tell which economists got it right, but it is important to take steps to protect your estate plans from the possibility of increasing inflation.

Defining Inflation

Unsure of what exactly defines inflation? It is a term that’s tossed around a lot without really being explained. Simply put, it is the measurement of the purchasing power of the dollar. When inflation goes up, our dollars buy us less.

Look no further than the housing market for a real-life example of inflation and its impact. In some communities, the cost of housing has surged more than 30 percent, while salaries have only increased by roughly 2.5 percent. That makes it difficult for more Americans to become homeowners.

Of course, inflation is not limited to just the real estate market. The cost of gas, groceries, and virtually every other type of good or service is directly impacted by the rate of inflation. By understanding how inflation affects our finances, we can begin to guard against its impact on our estate plans.

The Impact on Estate Plans

Many people create estate plans for the express purpose of providing for others. If financial stability for your spouse, children, grandchildren, or disabled loved one matters to you, it is important to pay attention to increasing inflation. That’s because it has a direct effect on the money you plan to leave behind.

Let’s say you have $500,000 that you hope to leave to a disabled child for the purpose of buying a home. While this might seem like plenty of cash to buy real estate now, inflation may continue to impact the housing market. By the time that $500,000 is inherited, it may not be enough to buy a home. If your current net worth is no longer enough to support your estate planning goals, insurance may help fill in the gaps.

Strategies to Combat the Effects of Inflation

Diversification is one of the best ways to limit inflation’s impact on your estate plans. A diversified investment plan can address many of the most common concerns surrounding rising prices, your lifestyle, and the legacy you hope to leave. When inflation is limited to the US economy, international stocks are a good bet. Real estate stocks and investment trusts can perform better if higher inflation causes the value of assets to increase. Bonds also tend to perform well when inflation rises, especially Treasury Inflation-Protected Securities. Consider each of these options as you aim to diversify your assets.

Many seniors see the rise of inflation and assume they will need more cash available for everyday expenditures. Assuming you have a solid plan for cash in place now, it might be best to hold off on making any big changes – at least for now. Holding less cash and investing for growth potential is the better strategy. Unless assets grow at the same rate as inflation, odds are good that you will feel like you can’t afford as much in a few years. Adding more to your cash allotment now could leave you exposed down the line.

The Financial and Estate Planning Advice You Need

Inflation is on the rise. There has never been a better time to meet with a trusted estate planning attorney to review your goals and adjust your plans. A financial planner can also help run a stress test on your estate plans by running scenarios with even higher inflation. Knowledge is power, and by educating yourself on your options, you can make your family’s best interests a true priority.

Current inflation concerns aside, it is important to remember that there’s always a degree of uncertainty to consider when making estate plans. Nobody knows what tomorrow might hold, and by making proactive decisions now, you can guard against the very worst case scenarios. Working with a professional can help you find the right strategy for your goals and loved ones. To schedule an estate planning strategy session and put a plan in place for you and your loved ones, call us at (281) 885-8826 or schedule online here.

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