How Does COVID-19 Affect Estate Planning?

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COVID-19 impacts estate planning.

So much has changed for Americans in the past month.

Schedules of work and school have been disrupted.

Parents are now balancing online meetings with managing the at-home education of their children.

Some people have lost their jobs entirely.

Contact between family and friends has been limited to phone calls and video chats.

Yes, life looks much different because of COVID-19.

In fact, the The National Law Review recently published an article titled “Impact of COVID-19 on Estate Planning”.

COVID-19 highlights the value of estate planning.
COVID-19 makes certain estate planning strategies more appealing.

So, how has estate planning been impacted?

Start with basic estate planning.

Do you have your estate plan in place?

If no, you should prioritize doing so.

You need a general durable power of attorney for financial matters, an advance health care directive, and a last will and testament or a trust.

If you already have an estate plan, you will want to review it and all accounts with beneficiary designations.

Make any necessary updates with the assistance of your estate planning attorney during the COVID-19 pandemic.

In times like these, you cannot afford the risk of not having an estate plan.

In addition to basic estate planning, you should consider wealth transfer strategies.

The current financial climate with historically low interest rates and depressed asset values brings with it opportunities to transfer significant wealth to beneficiaries.

What are some options to consider?

Intra-Family Transactions.

What is an intra-family transaction?

This occurs when older members of the family sell or lend assets to the younger members of the family.

The assets sold or loaned must appreciate at a rate greater than the charged interest rate.

What does this do?

The value of the sold or loaned asset will be frozen at the loan or purchase price within the estate of the senior family member.

This value will be based on the fair market value.

With a depressed fair market value as a result of COVID-19, the appreciation of the value will be outside the taxable estate when the asset values rebound.

Grantor Retained Annuity Trusts (GRATS).

This trusts allow the grantor to retain an annuity stream from the trust while contributing assets to the trust.

What happens when the term of years for the annuity stream expires?

The balance of assets held by the trust pass to beneficiaries.

The value of ultimate transfer of assets is calculated by the IRS using the assumed rate or return and the value of the annuity stream you retained.

The current assumed rate of return is 1.8 percent.

What does this mean?

You could pass the assets free of a transfer tax to your beneficiaries at the end of the term if the annuity stream rate you retain is equal to the value of the assets remaining plus 1.8 percent.

Charitable Lead Annuity Trusts.

These function similarly to a GRAT.

Instead of the grantor receiving the annuity stream, a designated charity becomes the recipient.

Beneficiaries received the assets in the trust after the end of the annuity stream term.

Discuss your options and your goals with an experienced estate planning attorney, especially if COVID-19 impacted your estate plan in any way.

Reference: The National Law Journal (March 13, 2020) “Impact of COVID-19 on Estate Planning”

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