Estate and Wealth Transfer Planning Considerations During the Coronavirus Crisis

The difficult times we find ourselves in today resulting from the coronavirus pandemic (COVID-19) may have you thinking about your own personal estate planning situation. The current environment presents the opportunity to review your overall estate plan and consider wealth transfer strategies that can be beneficial during this time.

It is important to review your current will, or execute a will if you have none, so that you can properly decide on various aspects, including how you wish your estate to pass on death, whom you wish to name as guardian for minor children, who should serve as executor and trustee, and whether your intended beneficiaries should receive your estate outright or in trust. No less significant, you should have a durable power of attorney and medical directive to authorize an agent to act on your behalf for financial and medical decisions if you are unable to do so yourself. The medical directive also can authorize your agent to have access to your medical records if that were to become necessary.

For families with college students living at home for the next several months, there is no better time than the present to have them execute their own powers of attorney and medical directives wherein they appoint parents or other individuals as agents authorized to make financial and medical decisions on their behalf if they were to become incapacitated. Without these documents in place, if the child were hospitalized and unable to act on his or her own, the parent would need to initiate a court proceeding to seek legal guardianship of the child in order to make decisions on the child’s behalf.

Attention also must be paid at this time to reviewing personal life insurance, IRA, 401(k), and other pension plan beneficiary designations to be sure these designations are consistent with your intent. It may be advantageous to consider the conversion of your traditional IRA to a Roth IRA, since the required payment of income taxes on the conversion will be based on the current (now lower) value of the traditional IRA. Further, the Coronavirus Aid, Relief, and Economic Security (CARES) Act recently signed by President Trump has suspended any required minimum distributions from IRAs, 401(k)s, and other qualified retirement plans for 2020. Since the amount of the required minimum distribution to be taken for this year is calculated based on the value of an individual’s retirement account at December 31, 2019 when account values were higher, the decision to suspend a distribution for 2020 certainly may benefit individuals who otherwise would be required to pay income taxes on such distributions.

For business owners who, prior to COVID-19, were considering the transfer of their businesses to the next generation, now is actually an ideal time to transfer assets given the current decline in market values, lower interest rates, and the fact that the current federal estate, gift, and generation-skipping transfer tax exemptions are scheduled to be reduced in 2026. Gifting property while the value is depressed offers the opportunity to use less of your lifetime gift exemption and take advantage of certain estate planning strategies that work well during times of lower interest rates, such as grantor retained annuity trusts and sales to grantor trusts. The use of intra-family loans, such as between parent and child, or refinancing of such loans at lower interest rates also should be considered.

As to the April 15, 2020 federal income tax filing and payment deadline that has now been extended to July 15, 2020, the Department of the Treasury and Internal Revenue Service issued Notice 2020-20 on Friday March 27, 2020 that has included the federal Form 709 gift and generation-skipping transfer tax return with a similar extension deadline for the filing of the Form 709 and payment of any federal gift tax or generation-skipping transfer tax that may be due. However, if you are the executor or administrator of a decedent’s estate and are required to file a federal Form 706 estate tax return, the filing of a federal Form 706 and payment of any federal estate tax, if due, currently has not been extended as a result of COVID-19. This return is typically due within nine months of a decedent’s death, unless an extension is filed within this time. For any federal estate tax that may be due currently as a result of a decedent’s passing, consideration must be given to the use of the six month alternate valuation date for purposes of valuing assets owned by a decedent at death. Because this rule allows an estate to value assets as of six months after a decedent’s death rather than using date of death valuation for assets, the federal estate tax to be paid may now be lower.

Gibbons stands ready to assist with any concerns. If you have any questions regarding estate, trust, or family succession issues, please contact Rita M. Danylchuk, who leads the firm’s Trusts & Estates practice. In addition, we will continue to monitor the coronavirus situation and update you accordingly.

To view all client alerts in Gibbons “The Coronavirus Pandemic and Your Business: How We Can Help” Series, click here. Please also be sure to follow Gibbons on LinkedIn for a continuous feed of COVID-19 related updates and other important business, industry, and firm news.