Planning Opportunities in a Volatile Market


Recent political upheaval in Europe and elsewhere has led to fluctuating conditions in global markets. While a downturn in stock prices isn’t a welcome sight, volatile market conditions do present some unique financial planning opportunities for investors and those looking to preserve wealth for future generations.

Invest for the Long Term

Simply put, depressed markets can provide great buying opportunities for the savvy investor. It may be an opportune time to rebalance your investment allocations and make some strategic acquisitions.

Transfer Wealth to Future Generations

Depressed valuations and a low interest rate environment combine to make for opportune conditions for wealth transfers. Ideas include:

  • Gift More Shares at Discounted Prices
    The current annual exclusion for gift tax purposes is $14,000 per individual, per recipient. Further, each individual can give up to $5.45 million during their lifetime or at death in excess of the annual exclusion amounts without incurring gift taxes. When share prices are lower, you can transfer more shares to your heirs while staying under these limits, thereby providing greater potential opportunity for them to realize the fruits of a rebound.
  • Utilize Low Interest Rates for Intra-Family Loans
    Utilizing inter-entity loans to engage in arbitrage could allow family trusts to create capital gains and preserve trust assets, with minimal gift tax implications. Because of the low interest rate environment, the AFR (Applicable Federal Rate) required for all loans presents a minimal cost to offset potential gains. Further, if the interest charged is low enough, it could even be forgiven as a gift under the annual exclusion amounts, allowing a greater flow of assets to beneficiaries.
  • Create a GRAT
    A grantor retained annuity trust (GRAT) takes advantage of the low interest rate environment to provide a vehicle for tax efficient wealth transfer.  Using a GRAT to transfer shares of a low valued asset, particularly one which is expected to rebound or grow substantially in the future, is another effective way to transfer wealth efficiently to beneficiaries, and is one of the strategies we’ve seen our clients use effectively in this type of market environment.

Use Losses to Offset Taxable Gains

Down markets provide investors opportunities to harvest losses and potentially offset other capital gains. However, tax loss harvesting is a strategy that should be undertaken thoughtfully and with the advice of your tax advisor to avoid pitfalls such as wash sales, or making poor investment decisions due only to the tax benefit.

All of these strategies should be carefully considered and discussed with your financial advisors before undertaking. The JDJ team can work with you and your team of advisors to help identify these planning opportunities and ensure you make the most out of market conditions to safeguard your family’s financial future.