Posted: 6-4-25 | Heidi Meeuwenberg
Innovia Planning Insights: A Simple Gift Strategy with Big Estate Tax Benefites
One of the simplest and most effective estate planning strategies for high-net-worth families is annual exclusion gifting. In 2025, each individual can give up to $19,000 per recipient, which means a married couple can jointly gift $38,000 to the same person—without using any of their lifetime estate and gift tax exemption. This allows families to gradually transfer wealth to children, grandchildren, or other beneficiaries in a tax-efficient way.
For example, a couple with two children who gifts the maximum annual exclusion gift each year for 20 years would transfer a total of $1.52 million out of their estate ($38,000 × 2 children × 20 years). If their estate is eventually subject to a 40% estate tax, this strategy alone could result in over $600,000 in estate tax savings—all without filing a gift tax return or tapping into their lifetime exemption.
Market Dynamics
| Asset Class | 1 month returns | Year to date (chart below) | 3-year returns (annualized) | 5-year returns (annualized) |
| Large companies (S&P 500) | 6.3% | 1.1% | 14.4% | 15.9% |
| Big technology businesses (Nasdaq 100) | 9.2% | 2.0% | 20.1% | 18.4% |
| Small companies (Russell 2000) | 5.8% | -6.5% | 5.2% | 9.7% |
| Foreign stocks (ACWI ex US) | 5.0% | 14.7% | 10.1% | 11.0% |
| Bonds (Bloomberg US Aggregate) | -0.9% | 2.2% | 1.4% | -0.9% |
May Market Recap: Stocks Climb, Bonds Face Pressure from Rising Rates
Fears of a recession driven by tariffs faded in May as stocks continued their upward trajectory. With the threat of an all-out trade war currently off the table, supply chains are stabilizing, and near-term earnings growth appears more likely. Last quarter’s earnings came in strongly, rising 13.3% compared to the 7.1% projected in at quarter-end.
Large-cap tech led the rally in May, followed by other large firms, small caps, and international stocks. Year-to-date (see chart above), international shares remain the top performers, bolstered in part by a 8.3% decline in the U.S. dollar relative to other currencies. The weaker dollar, along with a shift in investor sentiment away from the U.S., has helped lift foreign markets.
In contrast, fixed income investments struggled in May as long-term interest rates rose from 4.2% to 4.4%. Rates typically climb due to:
1) stronger economic growth
2) higher inflation
3) low confidence in government finances
With inflation nearing the Fed’s 2% target and moderate economic growth expected, rising debt and deficits appear to be the main driver behind this recent move.
Economic Snapshot
The broader economy remains solid. Retail sales are growing by over 4% annually, manufacturing orders are robust, and jobless claims at remarkably low levels (see chart below). While tariffs still pose risks to prices and sentiment, current indicators point to continued economic strength.
Jobless claims are low, manufacturing orders are rebounding, and retails sales are strong.
Looking Ahead: Budget Battles and Global Bond Markets
With earnings season concluded and tariff tensions easing, market focus has shifted to Congress’s budget negotiations. Current proposals would increase deficits in the short term and add to long-term debt, prompting a rise in bond yields: 10-year Treasuries are up from below 4.0% in April to 4.4%, and 30-year yields rose from under 4.4% to 4.9% (see chart below). In bond market terms, these are significant moves.
10- & 30-year bond rates have moved up mostly on government budget concerns.
Japan is facing similar, but more acute challenges. Japanese 10-year yields have climbed from 0.0% to 1.5% over five years, and 30-year yields from 0.4% to 2.9%. With government debt at 263% of GDP—more than double that of the U.S.—Japan’s fiscal position poses potential risks to global markets. As the world’s third-largest bond market and economy, instability there could have wide-reaching effects.
U.S. Outlook: Growth Ahead
On a brighter note, the U.S. economy is expected to grow faster in Q2. Supply chains are normalizing post-trade-war, and recession risks appear to be receding. Second-quarter business profits are projected to grow 5.0%, with full-year 2025 at 9.1%, and 2026 forecasts reaching 13.5%. GDP growth of around 2% to 4% is expected (see chart below).
GDP growth of 2-4% seems “baked in” to current forecasts.
Investment Strategy & Outlook
We continue to favor diversified portfolios across public and private assets, with a balance between U.S., international, growth, value, and large-cap exposures. Small caps continue to lag, but maintaining this exposure provides significant upside potential if economic growth accelerates.
In terms of fixed income, we prefer mortgage-backed securities and mid-quality corporate bonds, which offer attractive yields and low default risk. We will consider making an adjustment if rates continue to rise but remain cautious about lower-quality credit unless conditions improve.
Within private markets, we are shifting our real asset focus toward infrastructure over core real estate, seeing stronger returns and lower interest rate sensitivity. We also continue to find attractive opportunities in private credit and equity through anchor and seed-round investments.
While market and economic volatility is not entirely behind us, investors appear more confident in how the current administration is managing policy shifts and responding to market signals. In the short term, much of the previous uncertainty has faded.
As always, feel free to reach out with any questions about your portfolio or the current market environment.
Private Market Pulse: The Benefits of Private Markets
One of the key areas where we believe we can add value to clients is by a focus on private markets. Although our private market investments take different forms, there are a few underlying reasons that drive this emphasis. In general, private markets offer the potential for better returns, lower volatility, better underlying company growth, better entry valuations, and often more dispersion between low, average, and strong performers. The charts below illustrate some of these advantages. Chart #1 shows the difference between private companies and public companies in performance. Chart #2 shows the difference in growth rates in revenue and EBITDA (Earnings before interest, taxes, depreciation, and amortization) between public and private companies. Chart #3 shows the difference in valuation between public markets and private transactions.
Chart #1:
Chart #2:
Chart #3:
The greater dispersion within the private equity part of the market is shown in Chart #4 below. This dispersion provides the opportunity to outperform the median manager with hard work and selectiveness. The data shows that it is much harder to meaningfully outperform the averages in public markets. For these reasons, we focus much of our investment research on private markets, and we believe that focus will have long term benefits for our clients.
Chart #4: Return ranges for various investment asset classes.
