Turning Downturns Into Opportunity: Recession-Era Strategies for Gift and Estate Tax Planning

Investment, Economy, Change, Success, Loss
When markets falter, many investors instinctively tighten their grip on their wealth, waiting for stability to return. But for high-net-worth individuals and families with long-term goals, a declining market is not merely a time to endure—it is a rare opportunity to act. From a gift and estate tax planning perspective, economic downturns offer unique leverage, allowing clients to transfer wealth more efficiently, reduce estate tax exposure, and position themselves for significant long-term advantage.
The IRS values gifts at their fair market value at the time of the transfer. When the market is down, that valuation—along with the gift tax cost—is lower. This means that more wealth can be moved out of an estate while using less of the lifetime gift and estate tax exemption, which currently stands at $13.61 million per person in 2024. That exemption, however, is set to be cut in half when the provisions of the 2017 Tax Cuts and Jobs Act expire after 2025. Acting now allows families to lock in the higher exemption amount while transferring assets that may appreciate significantly in a market recovery.
In practice, this might mean gifting marketable securities, closely held business interests, real estate, or even fractional interests in art or collectibles. Gifting directly to heirs is the simplest approach, but many families are better served by gifting to irrevocable trusts—particularly grantor trusts, which allow the client to continue paying income taxes on trust earnings, further reducing their taxable estate.
Another compelling strategy in a down market is the use of Grantor Retained Annuity Trusts (GRATs), which allow clients to “loan” assets to a trust and receive annuity payments back over time. If the assets appreciate beyond a modest IRS hurdle rate, that appreciation passes to beneficiaries gift-tax free. A market recovery following a recession can produce exactly the kind of returns that make GRATs effective. Similarly, Intentionally Defective Grantor Trusts (IDGTs) enable clients to sell assets to the trust in exchange for a promissory note, freezing asset value for estate tax purposes while transferring future appreciation out of the estate.
Depressed values also create powerful opportunities to use intra-family loans. Interest rates, while rising, remain historically low. By lending funds or selling assets to a family member or trust, the appreciation above the interest rate accrues to the next generation. For clients with shorter life expectancies, more advanced tools such as self-canceling installment notes or private annuities may be appropriate, removing large values from the estate without triggering gift tax.