Hoping all of you are healthy and well!
Because of COVID-19, the last few months have been difficult for many people personally, spiritually and economically. Each of these areas affect a person’s estate plan, and I have been asked many times how they should deal with COVID-19 in their plan.
For those with a solid plan and a current power of attorney, health care directive, will or trust, there is not a need to make significant changes or updates. We advise that people look over their documents to confirm that all is how they wish at this time. However, for those with outdated plans or no plan at all, this is a time to take the next step and put a plan together.
Since we know some victims of COVID-19 have needed to spend significant time in a hospital or in isolation at home, it may be beneficial to have instructions ready for those who are named to care for you. These may include instructions on paying bills, accessing funds, filing for disability or long-term care insurance, and stating your medical care preferences.
Although the downturn in the economy has left many with worry and anxiety about future finances, for some this may be a time of unique estate planning opportunities.
For clients looking to transfer assets to the younger generation, or for those with potential estate tax liabilities, the low interest rates and reduced asset values provide opportunities to transfer assets to their beneficiaries.
The low interest rates provide family members the opportunity to transfer assets on personal promissory notes with low interest rates. The low interest rate will help the family member finance the purchase. Additionally, the promissory note sale price will lock in the depressed value of the asset for the purpose of calculating the seller’s estate taxes.
Other estate planning tools that are useful at this time include the Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs). Both of these trusts are used to reduce the value of the assets transferred to future beneficiaries. GRAT provides income to the grantor, while CLAT provides income to a charity.
The value of the gift to the future beneficiary is calculated based on the 7520 rate, which is tied to the current interest rates. Since the interest rates are low, the 7520 rate is low. The lower the 7520 rate, the lower the value of the future gift. The reduced value of the gift can save on estate and gift taxes.
Balzarini is an attorney at law for Miller Legal Strategic Planning Centers, P.A. Contact him at firstname.lastname@example.org.