A bear market in stocks may be painful, but it can create the right circumstances for estate planning.
Last year, U.S. 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 S&P 500 up a slight 0.42%, 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 U.S. government allows individuals to transfer US$12.92 million tax-free over their lifetime or as part of their estate.