March 17, 2020

Uncertain times highlight the importance of preparedness and they may also present opportunities for meaningful adjustments. Given the current interest rate environment and market volatility, here are some financial planning strategies that you may want to consider.

Mortgage Refinancing 
On March 6, the yield on the 10-year Treasury note fell below 0.7% for the first time, and on Sunday the Federal Reserve cut its benchmark rate to a range to near zero in an effort to combat the economic impact of COVID-19. The Fed’s key short-term rate affects 30-year mortgages and other long-term rates indirectly. The average fixed rate for a 30-year mortgage rose to 3.36% last week, up slightly from an all-time low of 3.29% the prior week, according to Freddie Mac. That’s almost a full percentage point lower than 4.31% a year ago. Borrowers may stand to benefit from the combination of these lower rates and bond yields in the coming months.

There are personal factors to consider when deciding whether a mortgage refinance is right for you including your existing loan’s interest rate, cost of the refi, how long you plan to stay in your home, and how much your home is worth. If you plan to live in the home for longer than two years and if you could lower your mortgage interest rate by .5% to 1%, you may benefit from a refi.

Consolidating or refinancing other liabilities (credit cards, student loans, etc.)
The average APR for all credit card accounts is 14.87%, and rises to 16.88% for accounts assessed interest, according to the latest data from the Fed. Now may be a good time for a balance transfer to gain a 0% APR for a period of time. Similarly, review student and other types of loans for opportunities to lower a fixed rate or convert a variable rate to a fixed rate. Alternatively, Haverford Trust offers lines of credit and loans collateralized by your taxable portfolio at rates that may be significantly lower than your current credit card or other liability interest rates.

Making an annual gift exclusion
Individuals considering annual gift tax exclusions in 2020 may want to do so now or in the coming weeks. Depressed market values present an opportunity to remove future appreciation from an individual’s taxable estate.

Tax-loss harvesting
Markets downturns can provide a silver lining for future tax benefits in the form of locking in a sale of securities at a loss today. This loss can be used to offset future capital gains. Beware of wash sale rules that can cancel tax loss strategies.

Converting a portion of your Traditional IRA to a Roth IRA
The “cost” of converting a traditional IRA into a Roth IRA is paying taxes on the current value of the transferred assets. As such, it is advantageous to make these conversions when the market is down. Lower stock prices allow investors to convert more shares of stock when making a conversion of a specific dollar amount.

Placing assets into existing trusts or funding a new one
Funding a trust with securities while values are low allows future appreciation to occur on a recipient’s balance sheet instead of the individual gifting the assets. For clients with higher taxable estates, combining this strategy with a plan to utilize the current federal estate tax exemption of up to $11 million per individual may be a prudent decision.

A grantor retained annuity trust (GRAT) is a type of irrevocable gifting trust that allows a grantor or trustmaker to potentially pass a significant amount of wealth to the next generation with little or no gift tax cost. GRATS can be a very effective estate planning tool during low interest rates and lower market values. Individuals with taxable estates above the federal estate tax exemption or that have the potential to be over the federal estate tax exemption in the future may consider using GRATS as an estate planning tool.

Understanding your healthcare coverage
Review your current medical insurance for any coverage gaps or issues that may arise from healthcare related expenses.

Planning ahead financially and taking advantage of opportunities that arise in volatile times allows you to keep your focus on the bigger picture and the goals that are important to you. We encourage you to reach out to your portfolio manager if you’d like to discuss further.


The information provided herein is not intended to be, and should not be construed as, legal or tax advice or a legal opinion. Haverford does not provide legal or tax advice. You should contact your legal or tax advisor regarding your specific tax situation prior to taking any action based upon this information.

Investments in securities are not FDIC insured · Not bank guaranteed · May lose value.