Estate planning might seem like a complicated process for most Alabama residents. Most people want to make sure they’re leaving their loved ones with more than enough to take care of things after they’ve passed on.
But the reality is that the money you set aside now might not be worth the same amount later. Inflation can impact your estate plan in several ways.
A brief overview of inflation
Inflation happens when the cost of things increases while the value of our money decreases. Things you buy every day at the store are great examples – i.e., the price of a bag of chips from ten years ago to now.
Inflation can also occur on a much more rapid level with things like gas prices. Over time, the price of gas – among other things – goes up, but the actual value of your money doesn’t.
How inflation impacts your estate
Because the cost of living is constantly going up, money that you’ve put aside or designated might not be worth the same. Even if your money is invested and meant to grow exponentially over time, that growth rate might not be enough to keep up with inflation.
If you’ve set aside $10,000 through a life insurance policy to cover funeral expenses, that might not be enough. The odds of funeral costs increasing before you pass is extremely high, but you’ve still only set aside $10,000.
How do I battle inflation when estate planning?
The best thing you can do is review your estate plan often and compare it to inflation rates. You also might want to consider investments – like stocks and bonds.
You should also plan for estate and probate taxes, setting aside a specific amount of money for that purpose. Diversifying your estate plan, planning ahead and revising as necessary can help save your children from the burden of an unexpected expense after your death.