By KELSEY SWANEKAMP
Buffalo Law Journal

As Americans begin to recover from a slumping economy, their focus is shifting to the future - toward planning their retirements and organizing their estates.

"The economy has nuked people's retirement plans. It's blown them up," said Bill O'Loughlin, a financial planner and owner of O'Loughlin Financial Group.

While the housing market has expanded for three straight months, the drop in the gross domestic product was less than expected and economists see an end to the recession in sight, the impact of the downturn won't disappear anytime soon.

According to financial planner Peter Hafner, people are less eager to do estate planning during a recession.

"When everyone feels rich, it's fun to do estate planning," he said. At present, however, "People's accounts are not as big, so estate planning is not as big in people's minds," Hafner said. "It doesn't seem as urgent to protect your money from taxes."

This doesn't mean that people should avoid estate planning, he noted. Victoria D'Angelo, a partner with Jaeckle Fleischmann & Mugel, agreed.

"Estate planning is something people put on the back burner anyway. They're so busy trying to keep abreast of their work, their finances, their family," said D'Angelo, whose focus is estates, trusts and elder law.

Still, the down economy might mean it's a good time to restructure estate plans, said Roger Simon, a partner with Gibson McAskill & Crosby LLP - especially when it comes to gifting assets to the next generation.

"With the reduction of their assets, (people) have less to give," he said. "They are more reluctant."

But, he said, it's possible to take advantage of the sluggish economy to make the most of an estate.

"Gifts are valued lower than they once were," said Simon. "People can give more shares of stock, or a closely held business, or a home they want to pass on."

The economic dip can also affect whether an estate is eligible for estate taxes, which apply to estates of more than $3.5 million on the federal level and more than $1 million on the state level.

D'Angelo said that a smaller estate will translate to a smaller estate tax, or assets dropping below the taxable level - requiring a change of gifting or trust plans.

But overall, said D'Angelo, she hasn't seen a dramatic shift in people's attitudes toward estate planning because of the recession. Other issues, such as a congressional reworking of the estate tax or an upcoming change in the power-of-attorney law, are more pressing.

"You might get a couple people feeling that estate planning is not something they can afford," she said. "But I haven't seen a major reduction."

Both D'Angelo and Hafner said that the recession economy shouldn't prevent people from planning their estates. "You need to do this so you can transfer wealth to the next generation," he said.

"It's extremely important," said D'Angelo. "It's a big benefit in the long run."

According to Hafner, the psychological effects of a down economy can be most damaging. "I run into people who got scared out of the market," he said. "When you're jumping in and out, it can become impossible for your retirement plan to work."

Karen Mayhew, a client of Hafner's, owns a catering company in East Aurora - Daily's, which saw its slowest month on record this past April.

"Everyone pulled back and became very careful in the spring," she said. She kept a tight budget and experimented with cost-saving recipes to make it through the slowest months, but she said she had moments of doubt.

"I sat down and thought, ‘This might be the year that I don't make it in business,' " she said.

O'Loughlin said the most devastating effects of the downturn fall on those who are nearing retirement. "They don't have time to recover because of their age," he said. "They're going to have to work longer than they'd ever anticipated."

Hafner said the key to a recession-resistant financial plan is an asset-allocated portfolio, which includes a carefully crafted mix of cash, stocks and bonds. "If they can just ride out the ups and downs of the market without letting their emotions get the best of them, they can capture the returns of the stock market over time," he said.

The virtue of asset allocation comes with its relatively low risk. With such a plan, said Hafner, "You won't make a killing in the market, but you won't get killed by the market."

O'Loughlin warned that diversification could have drawbacks. "You can diversify to the point where one cancels out the other," he said. "You'll go nowhere. You're diversified, but you're not making any money."

Instead, said O'Loughlin, he invests in "well-managed corporations with continuous and compelling profit potential." He also recommended international mutual funds, or Asian mutual funds - which he said capitalize on the growing economies in India and China.

The only way to recover from these losses and rebuild your assets, he said, is to "allow for more time."
However, he cautioned against gambling with the market to recoup losses.

"I don't want people to ‘get even' by becoming speculative," he said.