How COVID-19 Affects Estate Planning

We are living in the midst of a pandemic on a scale not experienced since the Spanish flu pandemic in 1918, and it is impacting every aspect of our lives including estate planning. There are some core estate planning tasks that you should address now, and additional opportunities created by the current volatility of the financial markets that could create transfer tax free asset distributions.

Core Estate Planning Tasks

With isolation rules being encouraged or required across the country, many people are at home and living without the stressors and distractions of just a few months ago. This makes it the perfect time to focus on the wellbeing of yourself and your family, and this starts with reviewing your current estate planning documents to assure that they reflect your current wishes. The documents you should review are:

• Will
• Powers of Attorney (Medical and Durable)
• Revocable Trusts
• Beneficiary Designations
• Healthcare Directives

Now is the time to make a thorough review of these documents and identify any changes that need to be made. While you won’t be able to meet with your estate planning expert in person, you can still schedule calls or video conferences to discuss these changes. There are also several systems in place to electronically sign these documents to avoid social contact.

Transfer Tax Planning

Depressed asset values and historically low interest rates, as well as the generally volatile financial markets makes this an ideal time to transfer wealth to your intended beneficiaries. There are three basic structures to achieve this goal:

1. Intra-Family Transactions. This option capitalizes on the current low interest rates and depressed asset values. In this situation you would lend or sell assets to other family members, specifically your beneficiaries. As long as the appreciate rate of these assets is greater than the interest rate charged, it is a very efficient wealth transfer process because it transfers these assets tax-free. It is important to note that the value of the assets remains in your estate and are now frozen at the loan/purchase price. When asset values eventually rebound, all that appreciation will be outside of your taxable estate and will be held by or for the benefit of the intended beneficiaries transfer tax free.
2. Grantor Retained Annuity Trusts.The use of a Grantor Retained Annuity Trust (GRAT) allows you, the Grantor, to contribute assets into a Trust while retaining a right to receive, an annuity stream from the Trust over the course of a specified number of years. When this term of years expires, the balance of the assets held in the Trust pass to your intended beneficiaries. This is a good option right now because the IRS values the ultimate transfer of assets to your intended beneficiaries based on the value of the annuity stream you retain and an assumed rate of return on such assets. This rate is established by the IRS and is known as the 7520 rate, which is currently 1.8%. As a result of this situation, these assets could pass to your beneficiaries transfer tax free. If the assets outperform the 1.8% rate of return, all excess value is not included in estate taxation.
3. Charitable Lead Annuity Trusts. If you want charitable institutions to be the beneficiaries of some or all of your estate, you could use a Charitable Lead Annuity Trust (CLAT). This process is very similar to the GRAT discussed above, with the same benefits of the beneficiary/charity receiving the gift transfer tax free when structured properly.

Each of these options can be considered as part of your estate plan, but the benefits are contingent upon low interest rates and depressed asset values.

While times are uncertain, there are still opportunities to provide for yourself and your family. If you wish to discuss these transfer tax plans or review your estate planning documents, please contact Life Counsel & Planning to speak with one of our experts. Please call (904) 638-2345 or go online to schedule your free consultation.