Estate Planning in a Challenging Time | April 2, 2020

Estate Planning in a Challenging Time

To our Clients and Friends:

It is not uncommon for estate planners to be contacted by near-frantic clients hoping to quickly update their estate plans as they prepare to leave home for a vacation.  But we are not used to clients contacting us in a similarly panicked state because they have to stay at home.  Yes, these are different times, and we hope that you and your loved ones are healthy, safe and comfortable.

If you find that the current world health crisis has you wondering if your estate plan is up to date (or simply wondering if you have a properly-documented estate plan at all!), here are some of the things we think you should be taking into consideration

  • Do I have all of the appropriate documents in place?  For example:
    • Will
    • Trust
    • Advance Health Care Directive
    • Financial Power of Attorney
  • Have I selected the right people or institutions to serve as executor, trustee, health care agent and attorney-in-fact?
  • Are the beneficiaries currently named in my plan, and the shares they are to receive, reflective of my current desires?
  • Have I made provisions for the charities that I intend to benefit under my plan?

This is also a good time to make sure that your estate plan is designed to take into account changes in the tax laws that have occurred over the last several years, including substantial increases in the effective exemption from gift and estate tax and the availability of “portability” to allow spouses to, in essence, share their combined gift and estate tax exclusion amounts.  The combination of these two changes alone has allowed many clients to greatly simplify their estate plans while simultaneously providing greater capital gains tax protections for their beneficiaries.

You should also bear in mind that the recently-enacted SECURE Act changes the way in which most “inherited” retirement accounts must be withdrawn by the beneficiaries – usually much faster than under prior law, thus accelerating the imposition of income tax on those funds.  If you were counting on a slow timetable under which your beneficiaries would be required to take funds from those retirement accounts (that is, if you were relying on so-called “stretch-out” planning), you may need to rethink your expectations.  This is particularly true if you planned to leave the retirement plan funds to your beneficiaries through trusts – the accelerated withdrawal requirements may necessitate changing the structure of the trusts which would be the designated beneficiaries of retirement plan accounts.  That also makes this a good time to review and consider all of the beneficiary designations you have made as to retirement plans, annuities, insurance policies and similar assets.

It is also worth noting that we are currently in a record-setting low interest rate environment.  Low interest rates (and the low asset values they may reflect) lend themselves to implementation of certain estate planning approaches, including:

  • Gifts of interests in assets with currently low values (and particularly fractional interests in such assets), especially if there is a reasonable expectation of significant value increases in the future, thus reducing the taxable value of transferred assets
  • Sales of the same types of interests to so-called “intentionally defective grantor trusts” (IDGTs); this works well with interests in closely held businesses or real property which may be sold within ten years or so, again reducing transfer tax costs
  • Gifts to grantor retained annuity trusts (GRATs) under which the creator of the trust retains a right to collect fixed payments from the trust for a specific period of time, after which the remainder will pass to his or her chosen beneficiaries, a strategy which can minimize or eliminate gift tax
  • Loans to family members, as long as there is a reasonable expectation that the borrower can invest at a rate of return in excess of the current very low interest rate required to be called for on such a loan

While our physical office is currently closed, we remain available for telephone and video conferences, and we have full capabilities to prepare any type of estate plan document for you.

Again, we hope you and your families remain safe and well – and we are here to help whenever you need us.

Spaulding McCullough & Tansil LLP
Trusts & Estates Team

Kevin J. McCullough | Carmen D. Sinigiani | Albert G. Handelman | Mark A. Miller
Barbara D. Gallagher | Katherine L. Jeffrey | Candice L. Raposo