Estate Planning During the Pandemic

Kip Rupple, 62, of Muskego, Wis., plays guitar in a classic rock band on the weekends. He and his wife, Roni Kramer, 56, ride Harleys. They know how to have a good time, but they’ve lived enough to know when to take life seriously.

Last year, Rupple saw the wife of one his best friends get sick and die. “I remember how painful it was for them while she was on her deathbed, having attorneys in there doing estate plans for the two of them,” he says. “I would never want that, and now the situation with COVID made me realize it’s probably a good time to get ahead of that sort of thing.”

The COVID-19 pandemic has made 2020 a nightmare for many people around the world, and inadequate estate planning can exacerbate the pain. Certified financial planner Stacy Francis, president and chief executive of Francis Financial, in New York City, recently helped a client whose husband passed away in the hospital due to COVID complications. “She came to us with screenshots of his last texts to her that were frantically sent and trying to outline their investment accounts, where their money was and what she needed to do,” Francis says.

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Since then, Francis and the widow have worked together to take control of her financial situation and update her own estate plan. That’s the thin silver lining Francis hopes people take away from her client’s story. “While there’s been so much heartache due to COVID, use this as an opportunity to get your estate plan in order, get your life insurance in order, get your financial ducks in order,” she says.

Having a will and estate plan is important for everyone, but it’s crucial as you approach retirement. You’ll prob­ably have more assets at this stage of your life, and it’s important to consider who you would like to inherit them. You’ll also want to be certain that your spouse and family will be well taken care of if anything happens to you.

Try a trust

For many people, family is the point of estate planning. “Preparing your estate is a real act of love—not for you, but for your family,” says Chas Rampenthal, general counsel for LegalZoom. “You’re telling them straight up, ‘I’m not going to put that burden on you to figure out what I wanted. I’m going to tell you what I want, so you don’t have to worry about it.’ ”

Without a will or estate plan, state law dictates how your assets are distributed after you die. “Not only can this be a costly process in many cases, but it can also be a giant burden on your heirs during a time of grieving and sadness,” says Taylor Schulte, a CFP and host of the podcast Stay Wealthy.

Even with a will, going through probate (the court-supervised process of passing assets through a will or, in the absence of a will, through state law) can be time-consuming and expensive. You can avoid it by setting up a trust, the most common of which is a revocable living trust. (Revocable means you can change the terms of the trust if your wishes or circumstances change.) A revocable living trust “is a really powerful tool,” says Samuel Nuxoll, an Ann Arbor–based estate-planning attorney with Miller Canfield. “It sort of has this mystique about it as being only for the rich and famous, but that’s just not true.”

To the contrary, he suggests that most people—especially anyone who has children or owns real estate—could benefit from setting up a trust. Not only does having a trust let you avoid probate and help ensure that your money goes to the people you choose, but it also lets you control exactly how the money can be used and appoint a person to take control when you’re not available.

“With a will, the executor is really just kind of an administrator who transfers assets from one person to another. But a trustee is more of a decision-maker,” he says. “They’re standing in your shoes and making decisions you would want to make if you were still around to make them.”

Family matters

Nuxoll sold the idea of a trust to Brian and Marisa Pilarski, of Chesterfield, Mich. When they had met with him, they were just hoping to outline what would happen to their 1-year-old son, Franklin, if they were both to pass away. But Nuxoll explained that if they were to die while Franklin was still a minor, simply leaving him all their assets wouldn’t work out the way they wanted. “He guided us to think about, in the event of an emergency, who things will go to, how things will be spent, how we want to allocate those funds,” Brian, 33, says.

Like many new parents, the Pilarskis had intended to square this all away for Franklin at some point. “But quarantine put a little fire under us to get us moving,” says Marisa, 35.

That’s in part because they both worked on the front lines of the pandemic in the Detroit area. Marisa is a family nurse practitioner, and Brian is a registered nurse (and working on his master’s to also become a nurse practitioner). “Marisa, at the urgent care, was getting a lot of patients that they were diagnosing, and then I was on the other end as far as taking care of them in the more acute phase of the illness,” Brian says.

Given that situation, and with day cares being closed, they made the difficult decision to send Franklin away for about a month and a half, splitting the time between both sets of grandparents. That gave them the motivation and child-free time they needed to get organized and create their estate plan. And their family is growing: “We’re pregnant again, with our own quarantine baby,” Brian says.

A growing family is a common reason to create or update your estate plan. Another is to give back to the family you grew up with. For Varadaraj and Sita Elango, both 65, one goal for their estate plan was to ensure they could continue providing for his mother and brother in India. Varadaraj came to the U.S. for graduate school in 1979 with $125 in his pocket. He went on to earn his PhD in chemistry from Penn State University and is now a senior sales director at Albany Molecular Research, in Basking Ridge, N.J. He and Sita married in India in 1986. She joined him in the U.S. in 1987 for residency training, and she is now an anesthesiologist.

Having achieved the American dream, he feels an obligation to help take care of family in his home country. “There, people don’t have a lot of savings, and most people live day to day,” Varadaraj says. “And a lot of times, there’s an expectation that your parents helped you get into school and a job, and when you get a job, you help your parents as they get old. That is the culture. And we are for­tunate being in this country and able to do that.”

Their investment adviser, Ke Dao, of Rivertan Financial Group, in Raritan, N.J., helped them realize that plan. “To do a proper estate plan, you really have to get into the heart of the client—what their values are, what they look to accomplish, how they view each child or family member,” he says.

Dao was able to guide the Elangos through an honest conversation about what they each hoped to do with their wealth and helped them come up with a strategy that made them both happy. “You could see a great relief on both their faces,” he says.

Blue-wave worries

After you set up your estate plan, you need to review it periodically—at least every year—for the rest of your life. “A will, a trust, an estate plan should be a living document,” says Rampenthal. “When doing New Year’s resolutions, that’s when I go back and take a look. Has anything changed? Should I be looking to update my will and my estate plan?”

Sometimes, those changes are headline news. Ahead of the 2020 U.S. presidential election, high levels of uncertainty moved some well-heeled individuals to make estate-planning moves. The Tax Cuts and Jobs Act of 2017 doubled estate-tax exemption levels, to $10 million, indexed for inflation to equal $11.58 million per individual in 2020. (It rises to $11.7 million in 2021.) But unless Congress extends a sunset provision in the tax-reform bill, it’s set to automatically drop back down to $5 million (indexed for inflation) in 2026.

During the presidential campaign, former vice president Joe Biden proposed lowering the estate-tax exemption as early as 2021 (such a proposal would need to be approved by Congress). Other tax policy changes in his platform included raising certain tax rates for wealthy individuals (who he has generally defined as households earning $400,000 or more) and nixing the step-up in basis rule. The rule allows you to inherit assets at their current market value, rather than at their original basis—the value at which they were first purchased. That means if you were to sell an inherited asset immediately, you’d pay no capital gains tax on it. So changing that rule would increase your tax bill and generate more revenue for Uncle Sam.

In addition, 12 states and the District of Columbia still impose their own estate taxes, and six impose an inheritance tax, which is paid by beneficiaries of the estate. Some state estate-tax exemptions are much lower than the federal cutoff. For example, Oregon and Massachusetts exempt just $1 million; residents with estates larger than that pay estate taxes at rates ranging from 0.8% to 16%. And although some states have increased their estate-tax exemptions in recent years, the economic losses caused by the pandemic could slow that trend.

Plus, the SECURE Act raised wealth-transfer concerns by eliminating the allowance for nonspouse beneficiaries to stretch required minimum distributions from an inherited IRA over their own lifetimes. Instead, heirs typically must now distribute all funds from an inherited IRA (or 401(k) or other defined contribution plan) within 10 years of the original account holder’s death.

GRATs, SLATs and all that

Clearly, while death and taxes are inevitable, the details around each are uncertain. So how do you plan for changes that may or may not come? By staying flexible.

One strategy Ani Hovanessian, an attorney and partner at law firm Venable and chair of the New York Tax and Wealth Planning Group, suggests is using a grantor retained annuity trust. You can transfer assets to a GRAT for a certain number of years, removing the appreciation from your estate without triggering any gift tax or having the assets count toward exemption limits.

Each year, you get a distribution, plus interest—the rate of which is set by the federal government and stood at a historic low of 0.4% as of October. Meanwhile, however, the assets in the GRAT continue to make money. For example, you can invest those funds in stocks and bonds and ideally earn a higher rate than 0.4%. Whatever is left at the end of the term, you can give tax-free to beneficiaries, typically into a child’s trust. “It’s virtually risk-free,” Hovanessian says. “You know your kids are going to get appreciation out of the GRAT that’s gift-tax-free to you.”

Another strategy for married couples to consider: using a spousal limited access trust. SLATs, like GRATs, let you move assets out of your estate, but assets moved into SLATs count toward exemption limits. If you find you need that money back, a SLAT allows for distributions to your spouse, but leaving the assets untouched preserves the value for future heirs.

You can also give away your money while you’re alive, which will decrease the value of your estate. In 2020, gifts of $15,000 per person are exempt from gift tax. But make sure you have enough in savings to pay your expenses in retirement, particularly the costs of long-term care. “Giving these assets away could leave you financially vulnerable, and this is so important to consider—especially now, in the time of COVID, when there is so much uncertainty,” says financial planner Francis. “While saving on taxes is extremely important, it’s not the sole reason to give money away to charity or family members.”

Ultimately, Hovanessian notes, your estate-planning strategy must fit your unique situation. “There are trusts, and there are options out there, but really, individuals should speak to their advisers to create a personalized, well-thought-out plan of action,” she says. Whatever plan you come up with, the most important thing is that you get it done.

In contrast to the situation when his friend’s wife passed, Rupple’s father died unexpectedly a couple of years ago with his estate plan already established. “Everything was all set up, it was all paid for, all his wishes were there,” he says. “He had that out of the way long before that happened.”

And now so do Rupple and Kramer. With their estate plan complete, they can be sure their wishes in life to provide for their loved ones—even in death—will be known and carried out.

How to talk to your parents

Consider talking to your parents about their own estate plan, including all the documents you need access to (see below). Broaching the subject of money and death might seem difficult. But being prepared for the inevitable can help you avoid extra pain later when you are grieving. “If your parents don’t have these essential estate-planning documents, then certainly it’s going to be much more difficult for you, your siblings and your loved ones,” says Cameron Huddleston, former Kiplinger.com columnist and author of Mom and Dad, We Need to Talk. She notes that many people might fear coming off as greedy, requesting an inheritance that may or may not exist. So she suggests approaching the subject carefully. “Maybe you say, ‘Do you have something in writing that spells out your wishes?’ ” she says. “It’s very important to make clear you are looking out for your parents’ best interest, and not yours.”

Legal logistics and social distancing

Social distancing has created new challenges for those who need to create an estate plan. Pre-COVID, most states required estate-planning documents to be signed and notarized in front of witnesses. But in-person meetings pose a risk these days, especially for seniors, and shelter-in-place orders made many such legal proceedings illegal. So some rules had to change. (Be sure to check the current rules for your own state.)

In New York, for example, Gov. Andrew Cuomo issued executive orders that temporarily allow for virtual notarizations and electronic signatures on wills and trusts. “With remote authorization, it works really well,” says Stacy Francis, president and chief executive of Francis Financial, in New York City, who reports seeing an uptick in estate-plan inquiries starting in April. “So even though the courts were not necessarily in session, people could move forward and do their estate planning.”

Another strategy: outdoor, socially distanced signings. It works for Samuel Nuxoll, an Ann Arbor–based estate-planning attorney with Miller Canfield. He has even been able to safely consult with clients outside. “In Michigan, in the summer, the weather is often beautiful, so we can sit on somebody’s back porch, and I feel safe, and they feel safe,” he says. “Although . . . winters in Michigan are not so beautiful.”

Nuxoll has also been working with clients via video conferencing and good, old-fashioned phone calls.

Estate-planning must-have documents

If you’re drawing up an estate plan, be sure to check these documents off your list.

Last will and testament: A comprehensive outline of all your assets and your wishes for how they’re to be handled after your death. It should also include details on how to handle your digital assets inventory and guardianship designations, if you have dependents.

Durable power of attorney: Gives a person of your choosing the authority to manage your finances if you become incapacitated. (Some financial institutions may require you to use their own forms or meet certain additional conditions.)

Health care proxy: Allows your spouse or other selected family member to view your health records and make medical decisions, such as whether to accept blood transfusions or life support, on your behalf.

Digital assets inventory: A complete collection of your online accounts, electronic files, and physical computers and other devices, along with usernames, passwords, security question answers and any other information necessary to access each digital asset.