Right Now Is the Best Worst Time for Estate Planning—How to Take Advantage

It wasn’t the most cheerful breakfast conversation, but it was an important one.

“Mom,” one of my three kids asked while slathering jam on my latest attempt at sourdough bread. “What would happen to us if both you and Dad get COVID?”

I assured my kids that we’ll probably be fine. Besides, we have a will that indicates who would take care of them if the worst did happen.

But the question stuck with me. Do we really have everything we should have in order?

We don’t, according to estate planning attorneys. A will is good, but it’s not the No. 1 document to have on hand in case of emergency, said estate attorney Bonnie Landles-Dowling, of law firm Keegin Harrison.

“The most important things that people should have — no matter how much money they have — are a durable power of attorney for finances, and a power of attorney for advanced health care directive, or medical decisions,” Landles-Dowling explained.

If you come down with COVID-19 and end up on a ventilator for two weeks, the person you designated in your financial POA can pay your rent or mortgage with your checking account, or make your child support payment, or take care of any other urgent financial matters until you are able to resume control. And if the pandemic has taught us anything, it’s that any of us could become incapacitated at any time.

Our family is far from the only one to suddenly realize the importance of estate planning. According to The New York Times, attorneys all over the country are hearing from clients who want to create or update estate plans.

“I’m busier now than I can ever remember in 27 years,” said estate attorney David Handler, of law firm Kirkland & Ellis. It’s not just that the grim news reports are reminding people of their mortality. It’s also that many of us suddenly have time to catch up on things we’d previously put off.

“You’re finally home with your spouse so you can discuss these things, and we can get on a joint Webex call,” Handler said.

Besides setting up powers of attorney and a will, another important step is to designate a beneficiary on accounts that allow it, such as retirement funds and insurance policies, Landles-Dowling said.

Then, look into a revocable living trust. Like a will, a revocable trust is a document that allows you to dictate what happens to your assets when you die. But a trust also designates a trustee to manage your assets for you if you become incapacitated, and it can help your heirs avoid the lengthy and expensive probate process after you pass away. An estate attorney can help you determine whether a trust is right for you, according to Landles-Dowling.

A Challenging Environment

Of course, now that many people are finally getting around to estate planning, lockdown orders across the nation have made some aspects of getting it done more challenging. You probably can’t sit down in an attorney’s office and talk it over.

“We have had to meet with our lawyer via Zoom, and we are signing things via Docusign,” said Jackie JacksonDaley, of Alameda, California, who is working on a living trust and an advanced directive, and re-writing a special needs trust to protect her family. “I would prefer in person, but in some ways this has been easier.”

In many states, wills and other estate planning documents are supposed to be notarized in front of two witnesses. The National Notary Association reports that some states, including Illinois, have put in place emergency measures to allow remote notary services, while other states, such as California, have not.

However, people are getting creative to surmount these challenges.

“Your neighbors can watch you (sign a will) through the window, and they sign it afterwards. They don’t have to be within 6 feet, they just have to witness it,” Handler said. In fact, Handler himself recently refinanced his house, and managed to get the papers notarized contact-free.

“They stood outside, 10 feet away, with the door open and watched me sign. I put it down, they picked it up and stamped them,” Handler said.

There is also some discretion, at least in some states, on whether witnesses and notarizing are even necessary, Landles-Dowling said.

“Under normal circumstances we would always have two witnesses, but we are having people sign (wills) with an intent statement, saying ‘I intend for this to be my will, even though there’s no one witnessing it,’” Landles-Dowling said.

Of course, it has long been possible to draft basic estate planning documents at home without an attorney, using software or online services such as Nolo. In recent years, a number of startups have begun offering estate planning phone apps as well.

“These apps allow people to obtain wills and life insurance from the convenience of their phones,” said Wall Street Journal columnist Julie Jargon in a podcast interview. Fabric and Tomorrow are two apps that enable people to create wills and trusts, as well as purchase life insurance, using their phones.

“For people that have multiple properties and complicated investments, certainly it doesn’t take the place of having a lawyer and a professional,” Jargon said. “The target is younger families, people who might own a home, they have young children, but who don’t have a complicated estate.”

An Ideal Time to Transfer Wealth

For high net-worth households, there are special opportunities now that make this an ideal time to pass a legacy to the next generation.

“Low values, low interest rates and high volatility create wealth transfer opportunities,” Handler recently wrote in an email to clients. He broke down this statement for me on the phone:

Low Values

Stock prices are significantly below their peaks. This is an opportunity for high net worth families to make the most of their gift tax exemption. At the new lower stock prices, families can gift their children more shares without exceeding the $15,000-per-year or $11.58 million lifetime gift tax exemptions.

Low interest rates

Some of the lowest interest rates of all time present an opportunity when using wealth transfer vehicles such as the GRAT, or Grantor Retained Annuity Trust. A GRAT allows a giver — let’s call her “Grandma” —  to put assets into a trust for a recipient — let’s call him, “Norbert” — for a set amount of time, for example, two years. During that two years, the trust pays interest to Grandma, and the stocks, bonds or other assets (hopefully) appreciate inside the trust. At the end of the period, Grandma gets her original assets back, and any gains can be passed on to Norbert without being subject to gift tax. Because Grandma’s goal is to pass as much value to Norbert as possible, the less interest she has to accept from the trust, the better.

“It’s a lower hurdle for transferring wealth,” Handler explained. “The higher the interest rate, the more I have to pay myself, and the less my kids get. Right now the rate is 0.8 percent. If I put a million dollars in, I’ll get back my million plus 0.8 percent interest, and my kids get everything over that. If it grows 1 percent, they get something, let alone if it grows 5 or 6 or 10 percent. In the past, if I did a GRAT when rates were 5 percent, I’d get my million plus 5 percent back, and they’d get anything over the 5 percent hurdle.”

Volatility

When the market falls one day on news of huge retail declines, then jumps the next on news of a government stimulus bill, it’s enough to give anyone palpitations. And yet, at least one good thing can come of volatility: It can be an opportunity to transfer some assets, such as shares of a closely held company, at a discount.

For example, say that Grandma owns 100 percent of a shipping business and wants to transfer a 20 percent share to Norbert. Typically, Grandma would consult an appraiser who would determine what that share of the business is worth. The appraiser will apply a discount to reflect that fact that this is not a liquid asset, i.e., Norbert probably wouldn’t be able to sell it easily, and that it’s not a controlling interest in the business.

“Those discounts tend to be higher when the economy is in flux and things are more volatile,” Handler explained.

Whether you’re hoping to take advantage of the current economic climate to minimize taxes, or simply want to protect the next generation now that you have a little spare time, don’t hesitate to call up an estate attorney during lockdown and get the ball rolling on your plan.

“People should know that it’s absolutely doable without meeting someone in person,” Landles-Dowling said. “It is hard for people to throw their trust into someone that they’ve never met face to face, but I would say, find a good reputable law firm in your community. I’ve done several estate plans now completely remotely. This definitely shouldn’t get in your way moving forward on it, because it’s so important to do, and what’s going on right now is just proving that.”

How to Help:

Many are finding that helping others is an effective way to help combat feelings of powerlessness in the face of COVID-19. Here are some organizations that need your help in Chicago and the Bay Area right now.

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