Inflation is synonymous with higher prices and higher interest rates. It affects both our day-to-day purchasing power and short and long-term financial planning. The effects of inflation on savings, investments, and pensions are potentially more devastating than the effects of inflation on consumer goods.

Let us start our journey by learning about price inflation first.

Talking About Price Inflation

Price Inflation is a normal part of the economy. It is because as the economy grows, businesses have more money to invest, and this investment drives up the prices of goods and services. It also refers to a percentage increase in the prices of goods and services.

Inflation affects different people in different ways. For example, if you are on a low income, your conditions may worsen if basic living costs go up. It is because it is harder for you to make up the difference between what you earn and what you need to live.

There is no one specific cause of inflation. Price Inflation can be caused by too much money chasing too few goods. It can happen when the money supply grows faster than the economy producing goods and services. Other factors, such as wars or natural disasters, can lead to inflation by disrupting the supply of goods and services.

According to the New York Times article, “Inflation is a result of a hot economy”. In other words, this is when people in an economy have high disposable incomes to spend, which causes other people to access more credit. Inflation naturally causes many problems. For instance, the cost of living in California has been rising due to inflation. The government is also trying to reduce its deficit to gain control over this situation.

So let us move forward by understanding the effects of inflation on estate planning and how to plan it accordingly.

Effects of Price Inflation on Estate Planning

The effects of inflation on estate planning can be significant. If you don’t plan your estate properly, then inflation can reduce the value of your estate. It may even result in the estate having to pay taxes.

As prices increase, the value of assets decreases. As a result, inflation increases the cost of living and reduces the living standard for beneficiaries.

The effects of price inflation on estate planning are both significant and wide-ranging.
Firstly, inflation erodes the purchasing power of an estate, which can reduce the overall value of the estate. Inflation reduces the purchasing power of assets, including those held in an estate. Estate planning lawyers in Fresno provide their clients with several ways to increase their purchasing power during inflation. By creating a trust, they can hold and grow their assets over time. Additionally, they assist them in creating a will that specifies how assets will be distributed upon death.

Secondly, it reduces the value of debt. In the future, debt repayments will have a lower real value than they do today. It can affect the estate’s ability to repay debts and how much is left to distribute to beneficiaries. It also affects the amount of tax that is payable on an estate because the value of assets increases for tax purposes with the increase in the rate of inflation, meaning that more of the estate will be subject to inheritance tax.

Lastly, inflation makes you change your investment strategy for an estate because it reduces the value of investments, which are not indexed to inflation. Estate planners need to be aware of the potential impact of inflation on investments and should take this into account when planning for the future.

Estate Planning During Price Inflation

To protect your plan from high inflation, you can use some strategies to cope with the inflation. You can use an asset protection strategy to protect your assets from creditors by placing the assets in an irrevocable trust. It means that the assets are not accessible to creditors.

Estate planning during high inflation can be complex, as the value of assets can change rapidly. It is important to enlist the help of an estate planning lawyer to ensure that your assets are protected and that your estate plan is up to date.

If you have a will, trust, or other estate planning documents, regularly review these documents with your estate planning lawyer because inflation can decrease the amount mentioned in your documents.

For example, if you have a will or trust that gives your children $100,000 each when they reach the age of 30, that amount may not be as much as you think. When you originally wrote your will or trust, $100,000 was a lot of money. However, by the time your children are 30, the dollars may not be worth as much. In some cases, the amount may be so small that your children will not have a meaningful inheritance.

In such cases, an attorney can help you determine the value of your estate and calculate how much your children will receive in 30 years. The lawyer will also help you by telling you and guiding you throughout the process.

An estate planning attorney can also help you negotiate the best possible terms for your estate and will also make sure that you get the best mortgage rate possible. Because your mortgage rate will always be higher because of inflation, your lawyer can try to negotiate with the lender to get a lower rate. In case you are not able to pay your mortgage or you need to sell your home, the estate planning attorney will be there to help you. The lawyer will help you negotiate with the lender or bank to get the best possible terms of sale.