Healthcare Provider Update: For the University of California, the primary healthcare provider is Kaiser Permanente, which is part of a network that offers comprehensive medical services to faculty and staff. They participate in programs designed to provide quality health care as well as manage costs effectively. Looking ahead to 2026, healthcare costs for University of California employees are projected to rise significantly. Premiums in the Affordable Care Act (ACA) marketplace are expected to increase sharply, with some states anticipating hikes exceeding 60%. This situation may result in more than 22 million marketplace enrollees facing increases in their out-of-pocket premiums by over 75% due to the potential expiration of enhanced federal subsidies. The combination of escalating medical costs and these subsidy changes will likely strain budgets and access, prompting employees to reevaluate their healthcare options for the upcoming year. Click here to learn more
'University of California employees facing market downturns can leverage strategic estate planning opportunities, such as gifting undervalued assets and using tools like GRATs and Roth IRAs, to mitigate taxes and pass on more wealth to heirs—turning market volatility into an advantage.' – Michael Corgiat, a representative of The Retirement Group, a division of Wealth Enhancement.
'University of California employees should view market downturns as an opportunity to reassess their estate planning strategies, using tools like GRATs and Roth IRA conversions to transfer more wealth while mitigating tax liabilities for future generations.' – Brent Wolf, a representative of The Retirement Group, a division of Wealth Enhancement.
In this article, we will discuss:
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How market downturns can present estate planning opportunities.
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The strategic use of tools like GRATs and Roth IRA conversions.
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The importance of charitable giving in reducing taxable estates during volatile periods.
Estate planning is often seen as a challenging process, particularly during volatile market conditions. Making decisions with long-term impacts can be difficult when share prices are erratic and future market performance is uncertain. However, careful planning during these volatile periods can lead to better future returns and more efficient asset transfer to successors. While many focus on estate planning during market upswings, some of the most strategic decisions can be made when asset values are declining, particularly for University of California employees preparing for retirement.
Estate Planning and Volatility: A Strategic Advantage
Estate planning is often associated with market growth, focusing on transferring assets when prices are high. Yet, when assets are undervalued due to market downturns, significant opportunities often arise. The market's recovery after a sharp drop, like the one in April, shows how volatility can lead to wise decision-making. Future wealth transfers can be optimized by focusing on asset quantity instead of current value, as more shares can be passed on to heirs before gift-tax exemptions are exceeded, which can be an important strategy for University of California employees planning their estates.
The concept of moving assets during a market downturn proves to be more beneficial for estate planners than it may initially appear. When asset prices are low, more shares can be transferred before hitting the $19,000 annual federal gift-tax exemption threshold for 2025. This strategy allows heirs to benefit from future growth once the market recovers, providing a valuable option for those at University of California looking to optimize their estate planning during volatile times.
This approach is also useful for those aiming to stay under the $14 million per person lifetime federal estate tax exemption. For example, if a business was initially valued at $15 million but is now worth $14 million, a donor can place it in a trust. The tax-free transfer of future expansion to heirs keeps the business outside the donor's estate, a strategy that University of California employees could consider when planning for their family's future.
Changes to Gifting Exemptions Affecting Taxes
Though market downturns can provide estate planning benefits, it’s important to remember that estate planning laws are always changing. With Congress debating potential changes to gifting amounts, it’s essential to act while exemptions remain high. If the estate tax exemptions aren't renewed, the exemption may revert to around $6.8 million, adjusted for inflation. This shift could greatly impact wealth transfer plans, so it’s vital for University of California employees to take advantage of higher exemption levels while they are still in place.
Exploring Other Estate Planning Strategies
Grantor retained annuity trusts (GRATs) are another option for individuals who have already used their lifetime exemption but still want to reduce wealth transfer taxes. These irrevocable trusts allow individuals to leave assets to their heirs while retaining annuity income for a period. GRATs help mitigate estate taxes on any asset appreciation during the trust's duration, offering an option for University of California employees looking to pass on their wealth in a tax-efficient way.
The Internal Revenue Service (IRS) sets the annuity payout rate at 120% of the applicable federal mid-term rate, which is currently 5%. For beneficiaries to profit from additional value, the asset's growth must exceed this hurdle rate. If the asset's growth surpasses this rate, the remaining balance in the trust is distributed to the heirs tax free. University of California employees considering this strategy can potentially avoid estate taxes and preserve their wealth from future tax burdens.
Although current interest rates aren't exceptionally low, Dos Santos notes that using undervalued assets in a GRAT may still lead to favorable outcomes. By leveraging lower asset prices, individuals can establish GRATs with a higher chance of surpassing the hurdle rate when the market rebounds, a strategy that could be beneficial for University of California employees who want to plan ahead.
A Simpler Approach: Switching to a Roth IRA
Not all estate planning strategies need to be complicated. Sometimes, simpler methods provide significant tax advantages. For instance, a 90-year-old University of California employee switched from a $5 million traditional IRA to a Roth IRA during a period of market decline. The client reduced the taxable estate by paying the conversion taxes upfront, and now her son will receive the entire Roth IRA tax-free, along with any future gains.
Dos Santos believes this is a smart strategy, especially for seniors concerned about their taxable estates. By reducing the size of the estate, the Roth IRA allows its full value to be passed on tax-free to future generations, making it a great option for University of California employees planning for their heirs.
The Importance of Thoughtful Estate Planning Decisions
Estate planning should be done with care, especially when using irrevocable trusts like GRATs. Once assets are placed in these trusts, they cannot be withdrawn, so individuals must carefully consider their choices. Nevertheless, strategic estate planning presents unique opportunities to pass on more wealth to heirs without incurring unnecessary taxes, particularly during market volatility. University of California employees can make the most of these opportunities by strategically planning their estate transfers.
For those looking to efficiently transfer wealth and reduce their taxable estate, current market conditions may present opportunities. Market downturns can provide a tactical advantage, whether through Roth IRA conversions, using the federal estate tax exemption, or establishing GRATs. By focusing on the number of shares rather than current asset values, individuals can position themselves to realize long-term benefits and enable their heirs to inherit the full value of their transferred assets.
In conclusion, volatility is often viewed as a threat to financial stability, but it can actually be an asset when approached strategically. By leveraging low asset values during market downturns, University of California employees can potentially increase future returns and build a better future for their heirs.
Tax Benefits of Charitable Giving in Estate Planning
When considering estate planning during volatile market periods, charitable giving offers additional tax benefits. By donating depreciating assets such as stocks or real estate directly to a charity, individuals can reduce their taxable estate and avoid paying capital gains tax on appreciated assets. This tactic not only reduces estate taxes but also allows individuals to give back.
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Sources:
1. Fuscaldo, Donna. 'Markets Are Down: Here's How Your Estate Can Benefit.' Kiplinger , 15 Mar. 2025, www.kiplinger.com . Accessed 26 May 2025.
2. Chmielewski, Paul. 'Estate Planning During Times of Market Volatility.' Cerity Partners , 25 Mar. 2025, www.ceritypartners.com . Accessed 26 May 2025.
3. Kiplinger Staff. 'Eight Ways to Financially Plan Your Way Through Challenging Times.' Kiplinger , 24 May 2025, www.kiplinger.com . Accessed 26 May 2025.
4. Kotlikoff, Laurence. 'This Move Can Save You Tons on Taxes in Retirement. It's Best to Go Big.' Barron's , 25 May 2025, www.barrons.com . Accessed 26 May 2025.
5. Branton, Steve. 'How Sequence of Returns Risk Could Affect Your Retirement—And What HNW Investors Should Do.' Investopedia , 25 May 2025, www.investopedia.com . Accessed 26 May 2025.
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Service Credit in UCRP: Service credit is essential in determining retirement eligibility and the amount of retirement benefits for University of California employees. It is based on the period of employment in an eligible position and covered compensation during that time. Employees earn service credit proportionate to their work time, and unused sick leave can convert to additional service credit upon retirement. Employees can enhance their service credit through methods like purchasing service credit for unpaid leaves or sabbatical periods(University of Californi…).
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