Several indicators seem to be signaling that a recession is near. Earlier this year, a measure of consumer confidence fell to its lowest level in 12 years, reaching a figure that has historically come before a recession. Additionally, a nationwide survey of chief financial officers conducted by CNBC found that 60% expect a recession in the second half of the year.
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Though it is now the beginning of the second half of 2025 and a recession remains to be seen, it’s always best to be prepared for the worst, especially when it comes to your finances. Here are the estate planning moves you should consider making to protect your wealth and take advantage of a potential market downturn.
Gifting to Charity or Heirs
When asset values drop, you can gift more within the annual tax-free limit to family members.
“Gifting assets to heirs is especially advantageous during a market sell-off,” said Leslie Thompson, CIO and co-founder of Spectrum Wealth Management. “Lower valuations allow individuals to transfer more shares while staying within the annual gift tax exclusion, which is set at $19,000 per recipient in 2025, or using less of their lifetime exemption. This allows heirs to benefit from future appreciation outside of the donor’s taxable estate and reduce possible future estate taxes.”
It may take some extra financial planning, but consider using tools like grantor-retained annuity trusts (GRATs), revocable living trusts and donor-advised funds (DAFs), which can be very effective in volatile markets. Also, any time you edit or transfer assets, make sure you have the proper legal documentation in place.
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Roth Conversions
A key takeaway from trust assets is that lower account values mean lower taxes on Roth conversions.
“Roth conversions provide another valuable strategy when markets are down,” Thompson said. “Converting pretax retirement funds to a Roth IRA results in lower taxable income, since taxes are based on the asset’s value at the time of conversion. Once converted, the assets grow tax-free and can take full advantage of market recovery.”
Estate Freeze Techniques
Estate freeze techniques can be used for tax savings during economic downturns. You can also alter your beneficiary designations.
“Estate freeze techniques such as grantor retained annuity trusts or intentionally defective grantor trusts shift future appreciation to heirs while minimizing taxable values at the time of transfer,” Thompson said. “This results in lower gift tax implications at the time of the gift and shifting future growth outside of the donor’s estate, helping preserve wealth across generations.”
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 3 Estate Planning Moves To Protect Your Wealth as Recession Looms
