Estate Planning During the COVID-19 Crisis

Because of the difficulty having documents witnessed and notarized while we practice social distancing, a number of Governors have signed emergency orders that permit the witnessing and notarization through audio-video conferencing of various estate planning documents, including Wills and codicils, trusts and trust amendments, health care proxies and powers of attorney.

Additionally, current low interest rates and market volatility provide increased opportunities to shift wealth to children and other beneficiaries.   

Clients may therefore find this an opportune time to review and make updates to their estate planning documents and to implement new estate planning strategies.  The following is an overview of some of the questions clients may wish to keep in mind as they review their estate plans and some of the gifting techniques they may wish to consider.

Reviewing estate planning documents, including Wills and trusts

We recommend that clients review their estate plans to ensure their documents are in accordance with their goals.  In particular, clients may wish to:

• Review Wills and revocable trusts, with a focus on the following questions:
  • Are the dispositive provisions in accordance with current wishes?
  • Should any legacies be reduced in light of current or potential future market declines in order to increase the amounts passing to the residuary beneficiaries?
  • For a married couple, is maximum use being made of the federal and (if applicable) state estate tax exemptions and the exemption from the federal generation-skipping transfer (“GST”) tax?
    •  Clients may wish to review these provisions with us to determine if any updates are needed in light of tax law changes.
  • Should the appointment of executors, trustees and guardians for minor children be updated?

• Consider funding revocable trusts
  • Many courts are not accepting probate petitions currently or are accepting them only in limited circumstances.  Further, once courts begin accepting probate petitions again, there may be significant delays in probating Wills.  Prior to obtaining probate, assets in a decedent’s individual name are frozen and cannot be sold or accessed by the decedent’s executors or heirs.
  • Many clients have revocable trusts, with “pour over” Wills that provide for the funding of the revocable trust on the donor’s death.  These clients should consider funding, or partially funding, their revocable trusts now.  Doing so would make the assets accessible prior to the admission of a Will to probate, thereby permitting the trustees of the revocable trust to make investment decisions promptly, to pay expenses and to make distributions to beneficiaries in need of funds.

• Review beneficiary designations
  • Who is named as the beneficiary and the secondary beneficiary on IRAs, 401(k)s and similar plans and payable on death accounts?
    • Clients may wish to discuss with us the recent changes in the law that eliminated (in most circumstances) so-called “stretch IRAs” for non-spouse beneficiaries to determine if any changes should be made to their IRA beneficiary designations.
  • Who is the owner of life insurance policies, and who is the named beneficiary?
    • Clients who own life insurance policies in their own name may wish to consider transferring the policies (through sale or gift) to a life insurance trust to remove the proceeds of the life insurance from their estate for estate tax purposes.

• Review health care proxies, living wills and powers of attorney
  • Are the appointments of health care agents and attorneys-in-fact still appropriate?

• Review the titling of assets
  • Does each spouse have sufficient assets in his or her own name (or in his or her revocable trust) to fund a gift of the estate tax or GST exemption on the death of the first spouse to die?

Historically low interest rates

Interest rates continue to decline.  The May rate for valuing an annuity is at an all-time low of .80%, and the rates for short-, mid- and long-term loans are .25%, .58% and 1.15%, respectively, with the rates for mid-term and long-term loans also at an all-time low.

In light of these low interest rates, clients may wish to consider implementing one or more of the following techniques:

• Re-financing loans to family members and other beneficiaries;
• Lending funds to their children or other beneficiaries or to trusts for their benefit;
• Selling assets to a grantor trust in exchange for a note; and
• Establishing one or more GRATs.

The use of any of these techniques, which are discussed in more detail in Section V of our 2018 Alert Memorandum, would permit a shift in future appreciation to family members or other beneficiaries with minimal or no gift taxes. 

Use of federal gift and GST tax exemptions

Recent market declines may present an opportunity for some clients to make use of the $11.58 million federal gift and GST tax exemptions ($23.16 million for a married couple) through gifts of assets that clients anticipate will increase in value.  For married couples, consideration may be given to using a “spousal lifetime access trust” (or “SLAT”), which will permit the non-donor spouse to continue to have potential access to the gifted funds.

Charitable gifts