Updating Your Estate Plan During COVID-19

The pandemic has been a harsh reminder that life is unpredictable and can change at any moment.  This global health crisis has had a significant impact – physically, mentally, and financially – on all of us. Unfortunately, we all know someone who has lost a family member, friend, co-worker or client over the past nine months. COVID-19 has been an unwelcome reminder of our own mortality. One thing I am recommending to my family, friends and clients during quarantine is to pull out their estate plan documents and make sure they still accurately reflect their intentions and desires. And for those who have been putting off establishing their estate plan, the current uncertainty should serve as motivation to act.  There are several key estate planning issues that you should be reviewing with a Lex Nova attorney.

Are your documents up to date?

At a minimum, everyone should have the following documents: a Will , General Durable Power of Attorney, Healthcare Power of Attorney and Living Will.  Your Will designates an Executor who is charged with administering your estate, gathering your assets, paying debts and expenses and distributing assets to your beneficiaries. For many of my clients, a revocable living trust is a centerpiece for their estate plan.  A living trust can allow for management of assets during incapacity, avoid probate and control distribution of your assets upon your death.  A properly structured trust can protect your assets from potential creditors and help insure your assets remain in your bloodlines.  With a General Durable Power of Attorney, you appoint someone to serve as your agent to make financial and business decisions on your behalf.  The power of attorney can be effective immediately or only upon your future incapacity.  In a Health Care Power of Attorney and Living Will, you can authorize someone to make medical decisions on your behalf and state your wishes about end of life decisions should you be in a state of no recovery.  At the time of your inability to act, if you have not designated an agent, no one will be legally authorized to act on your behalf. Your loved ones may be required to go to court to request a guardian be appointed, a process that can be timely and expensive.

Is Your Trust Funded?

A properly drafted and funded trust can help reduce or eliminate federal and state estate taxes.  Certain trusts can protect spouses, children and beneficiaries with special needs.  Funding a trust involves retitling assets, such as real estate and financial assets, and designating the trust as the beneficiary of certain assets such as life insurance and retirement accounts. Given the recent passage of the SECURE Act, special care must be given to how beneficiaries are designated for qualified retirement accounts such as 401(k)s or IRAs.  In my experience, many clients fail to follow through with funding after establishing a trust.

Beneficiary Designations and Jointly Owned Assets

What many people do not realize is that your Will does not control assets that pass by beneficiary designation.  A beneficiary designation or jointly owned asset overrides the terms of a Will.  It is important to understand that any asset you own jointly with another person, with rights of survivorship, will automatically vest in the surviving owner upon the first owner’s death.  A failure to properly designate your beneficiary could significantly, and adversely, affect your estate plan. 

Tax Planning Opportunities

Currently, the federal estate, gift and generating skipping transfer tax exemption is $11.58 million per person.  This amount is scheduled to sunset in 2025 and revert back to pre-existing levels of $5 million, adjusted for inflation.  However, it is expected that under Joe Biden, the unusually high exemption amount could be reduced as soon as 2021.   Options include gifts of assets outright or in trust. In addition, the current low interest rate environment offers a lot of tax planning opportunities, including making intrafamily loans and gifts to charities.

The Department of Treasury has made it clear that if you fully utilize the current federal exemption now, there will be no claw-back of assets in the future.  However, if you fail to use the exemption before it is reduced, you will forever lose the option to do so.  Many high net worth individuals are taking the “use it or lose it” approach and making large gifts of their remaining federal estate tax exemptions.

Contact an estate planning and asset protection attorney at Lex Nova before it’s too late!