Practical Estate Planning Considerations During a Pandemic

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While the safety of your family is of first priority, the current health and economic crisis caused by COVID-19 raises issues and presents estate planning opportunities for your consideration.

Locate and Review Your Estate Planning Documents, Especially Advance Directives

Do you have your estate planning documents readily available? We typically hold our clients’ Wills, trust agreements and advance directives in our offices for safe keeping. Let us know if you need copies. Are your advance directives (advance health care directive, health care proxy, power of attorney, living will, do-not-resuscitate order) available and up to date? These documents allow someone else to make medical, health care and  financial decisions for you if  you are unable to do so yourself.

If you made bequests to non-family members in your Will or revocable trust (or designated beneficiaries for your retirement plans) that could now adversely affect your loved ones due to a decline in the value of your assets, or if any of your designated agents (such as a health care agent, executor, successor trustee or guardian for minor children) are no longer in a position to act on your behalf, you should consider updating your estate plan.

Dealing with Limited Access to State Courts

For those states that have declared “stay at home” orders and a shutdown of all non-essential businesses, state courts are generally closed for all but essential or emergency actions. In some jurisdictions, all probate proceedings (needed to prove a decedent’s Will to be valid and authorize an executor to administer a decedent’s estate) are delayed indefinitely. This unprecedented impact on state courts emphasizes the importance of maintaining current advance directives and using planning vehicles like revocable trusts to avoid probate and minimize court supervision of your person and estate.

Paying for a Loved One’s Medical Expenses is NOT a Gift

Although paying another person’s bill is generally treated as a gift, paying for the qualifying medical expenses of another person is excluded as a gift. Qualifying medical expenses include not only medical treatment but also related expenses such as medical insurance and long-term care services. Your payments must be made directly to the medical service provider to qualify.

Silver Lining to the Bear Market

COVID-19 has had a calamitous impact on the economy, but the resulting bear market may present planning opportunities. Gifting assets with temporarily depressed values can be an effective use a person’s federal gift and estate tax exemption (currently $11.58 million per person and $23.16 million for married spouses) before it “sunsets” in 2026 to $5 million per person ($10 million for married spouses), adjusted for inflation. You can “lock in” this current high exemption amount and still retain access to assets through your spouse by making a lifetime gift to a spousal lifetime access trust (SLAT). If you gift assets with temporarily depressed values to the SLAT, the anticipated increase in value when the market recovers will not be subject to further gift or estate tax.

Historically Low Interest Rates

Interest rates have been slashed to historically low levels to combat the economic impact of COVID-19. Certain estate planning techniques are designed to take advantage of such a low interest rate environment. A grantor retained annuity trust (GRAT) allows you to transfer future appreciation in assets to your children or others at no gift tax cost if markets rebound and outpace the low 7520 rate (currently 1.2%). Assets with temporarily depressed values may be sold to an intentionally defective grantor trust (IDGT) in exchange for a promissory note at the applicable federal rate (AFR). Intra-family loans at the AFR allow you to provide financial support to family members where gifting may not be appropriate, such as providing temporary funds for a child whose small business has been affected by COVID-19 shutdowns. The applicable federal short, mid and long term rates for April 2020 are .91%, .99% and 1.44% respectively.

Extension of Tax Deadlines

The April 15, 2020 due date to file any federal 2019 income tax returns, 2019 gift tax returns and to pay any 2019 tax due has been AUTOMATICALLY extended to July 15, 2020. The first and second quarter 2020 estimated payments have also been extended to July 15, 2020. You do not need to file any paperwork to secure the extended filing date and payment benefits. State deadlines vary. For example, Illinois has extended the 2019 filing and tax payment deadlines, but has not extended any 2020 estimated payment deadline. Check with your tax preparer to determine your due dates if you file income tax returns in other states.

Developments Concerning Retirement Assets

Under the recently passed CARES Act, there is no requirement to take a required minimum distribution (RMD) from your IRA or 401k in 2020. Please note the age for beginning RMDs increased from age 70½ to age 72 starting in 2020. In addition, people younger than 59½ can take an early distribution up to $100,000 from a traditional IRA or qualified retirement plan to pay for a coronavirus-related hardship, such as a job loss. The early distribution is taxed as ordinary income, but the taxes can be spread out over three years beginning in 2020. The early distribution can also be repaid within three years without counting against contribution limits. Loan limits from retirement plans are increased from $50,000 to $100,000 for individuals affected by the coronavirus.

Immediate and Remote Access to Seyfarth Attorneys

Although our physical offices are closed, we are working remotely and can help you now. We can provide you with revised and updated documents electronically and can supervise their execution in compliance with state shelter-in-place orders. California notaries public are authorized to continue performing notarial acts with recommended precautions, and Illinois and New York have temporarily authorized remote online notarization of documents where necessary.

Seyfarth uses WebEx for secured virtual meetings including video conferencing and document sharing. In addition, we can set up an access-code protected portal for you to access your important documents online at any time. Let us know if you would like to arrange a WebEx meeting or access your important documents through our firm’s secure portal platform.