Estate planning attorneys all across the United States are noticing an increase in inquiries both from existing clients and from new client prospects who are considering either making changes to their current estate planning documents or implementing new wills and revocable trusts amid the apparent threat of the COVID-19 disease. As this crisis rapidly evolves, and as the volatility of global financial markets continue to increase the anxiety of investors and their advisors, unique planning opportunities abound.
As a preliminary note, most people recognize that there is a flurry of misinformation online concerning this pandemic, so we urge our clients, partners, friends, and family to frequently review the information provided by the Centers for Disease Control and Prevention (cdc.gov/coronavirus/2019-ncov/index.html) and the Arizona Department of Health Services (azdhs.gov) and follow the recommended guidelines provided by these agencies. Now is the time for being informed, practicing social-distancing, and helping vulnerable loved ones and dependents as much as we can.
In an effort to provide a resource for those who are wondering what estate planning issues they should be considering during this crisis, Braun Cathie Kruzel offers this post as a helpful starting point. Please note that as a result of remote-access technology and an incredible staff, BCK is open and available to make appointments for anyone that is interested in discussing any of these issues in further detail with our experienced attorneys.
Basic Estate Planning
You need to focus on those legal issues that can have a substantial impact on your family. If you already have an estate plan, you should review your current documents to make sure they still reflect your wishes in the event of your death or incapacity. Whether you are reviewing current documents or are considering this for the first time, here is a review of some of the basic issues:
- Who holds your Health Care Power of Attorney? Have you named the right person? Do you have a ready copy of that document? Is the Health Care Power supplemented by a Living Will? These documents are oftentimes the first documents used when you become sick or incapacitated. Who talks to the health care professionals and makes important medical decisions for you is a primary concern at any time in your life, and now is no exception.
- Who is nominated as the Trustee in your Revocable Trust or Personal Representative in your Last Will? Is the person you have nominated still able to serve and is he or she the best person for this role? Should you consider a professional fiduciary company?
- Do you have minor children? Have you designated a Guardian for your children in your Last Will?
- Does the provision for how your assets are to be divided at your death need review? Have you named the right people? Are all of your beneficiaries still living? Should the beneficiaries receive their inheritance outright, or are there circumstances that would require continuing to hold the funds in trust?
- Is your Revocable Trust properly funded? In other words, have you changed the ownership of your real estate, financial accounts, and other assets to your Revocable Trust so that the administrative burdens of the probate process can be avoided?
- Do you have assets with beneficiary designations, like IRA’s, 401(k)’s, and life insurance policies? Are you aware that the beneficiary designation on file with the administrating institution may trump any and all provisions in your Last Will or Revocable Trust? Do changes need to be made to coordinate these designations with your other estate planning documents?
Advanced Estate Planning
An important consideration in any period of volatility in the financial markets, like what we are experiencing now, is that depressed asset values create an opportunity for transferring wealth with minimized Gift and Estate Tax ramifications. You may want to consider the following:
- Family Limited Partnership. Transfers of interests in holding entities are an attractive method of transferring wealth even in more normal markets due to minority discounts and the ability to maintain a consolidated investment strategy. But this gifting strategy may be even more attractive while asset values are low, since the future appreciation post-transfer will occur outside of the donor’s taxable estate.
- Charitable Lead Annuity Trust. This is another tool that is particularly effective during periods of depressed asset values and low interest rates. Simply stated, you transfer assets to a trust that designates a charitable organization of your choice to receive an annuity stream for a specified term of years. At the end of the term, the remaining assets pass to your designated beneficiaries. The current gift value of the assets transferred to your beneficiaries is determined by subtracting the present value of the annuity stream to the charity from the total value of the assets at the time of the transfer. The value of the annuity stream is calculated using a statutory rate (currently set at 1.2%!); the lower the rate the higher the present value of the annuity stream, which results in a more value ultimately transferred to your beneficiaries estate tax free.
- Grantor Retained Annuity Trust. This tool allows you to transfer assets to a trust while retaining a right for yourself to receive an annuity stream for a specified term of years. At the end of the term, the remaining assets pass to your designated beneficiaries. Similar to the Charitable Lead Annuity Trust discussed above, the value of the current gift is determined by subtracting the present value of the annuity stream from the total value of the assets at the time of the transfer, again using the statutory rate. If the future appreciation of the transferred assets exceeds the statutory rate (again, currently set at 1.2%!), the excess will transfer to your beneficiaries estate tax free.