How to Update Your Estate Plan for the Pandemic

The novel coronavirus pandemic is causing a lot of problems, but there are actions you can take that will capitalize on the chaos or maximize the protection available to you and your family.

The novel coronavirus pandemic spurred interest in estate plans. Many people realized their plans weren’t ready when the pandemic began.

The foremost task is to be sure your key documents are in order and up to date. Modifications might be needed to reflect some unique effects of the pandemic.

Your medical care document is the most important now.

The document might be called a medical power of attorney (POA), health care POA, advance medical directive, or a living will. Some estate planners use a combination of these documents. I call it a medical POA.

Whatever the name, the document should appoint one or more people to make medical decisions on your behalf when you aren’t able to do so. The document needs to be in place before there’s a problem. I’ve covered the details of the medical POA in past issues. You can read about the latest in the February 2017 issue.

Even with a medical estate planning document in place, you might need an update because of the unique nature of today’s situation.

It is best now to have multiple agents named to act for you under the medical POA. Another good idea now is to assume not all the agents will be available and able to act at the same time. State specifically that one or more of the agents may make decisions and take action when the others aren’t available.

Normally, I think it’s a good idea to name multiple agents and have them agree before an action is taken, but that might not be possible in the current circumstances. An agent might be ill, under quarantine or prohibited from traveling. You should make sure someone you trust is empowered to act on your behalf instead of leaving decisions to the medical providers.

Often the spouse or oldest adult child is named as the agent. Reconsider this approach. Suppose both you and your spouse fall ill simultaneously, as seems likely in this pandemic. It is best not to name your spouse as your agent, or at least not as your sole agent. Other agents you name also might be ill or under quarantine. If someone needs to travel a distance to reach a hospital near you, he or she is likely to have difficulty acting as your agent. Naming multiple agents maximizes the potential at least one will be able to assist in decision making.

Of course, be sure your named agents know about their roles and have copies of the medical POA. Your primary medical providers also should have copies of the latest medical POA. The document won’t be used if it’s not in the hands of the decision makers.

Your plan also needs a financial POA appointing one or more agents to mange your affairs when you aren’t able to. Without the financial POA, actions aren’t taken until after a court declares you unable to act on your behalf and names a guardian or conservator. That process will be public, cost money and take time. It also could be messy if several individuals each decide he or she should be appointed and others shouldn’t. For assets held in a living trust, a successor trustee named in the trust agreement will manage the assets.

As with the medical POA, it’s a good idea in the current environment to name more than one agent (also known as an attorney in fact) to fill the role in case the first person you name isn’t available. I discuss financial POAs in more detail in the January 2017 issue.

Of course, be sure you have an updated will and perhaps a living trust.

This is the time to complete those tasks you might have been procrastinating.

You also should consider some estate planning actions that take advantage of the current turmoil and uncertainty.

Some of you have estates that will be taxable under current law or after 2025, when the estate tax will revert to prior law if Congress doesn’t act.

After a decline in asset prices is a good time to remove assets from your

estate. You also might want to remove assets from your estate now, though the estate isn’t currently taxable, if you believe there’s a high probability of a political change in this year’s elections.

In recent issues, I discussed the advantages of making lifetime gifts to loved ones and how to maximize the tax benefits of those gifts. See our March and April 2020 issues.

The best time to make a gift of property often is after the property declined in value. You remove the same property from your estate at a much lower gift tax cost than you could have only a few months earlier. From an estate tax standpoint, assets that are temporarily undervalued often make the best gifts.

Extremely low interest rates are another feature of the current environment, and they create estate planning opportunities. You can make loans at very low interest rates to family members with little or no tax cost, or renegotiate existing loans to reflect today’s low interest rates. See our August 2019 issue for details.

Or you can sell assets to an irrevocable trust in return for installment notes. The trust pays you back over time at very low interest rates using income from the property it purchased or future tax-free gifts you make to the trust.

There are other estate planning strategies that pay off the most when interest rates are low. These include charitable lead trusts, private annuities, grantor retained annuity trusts, and sales of assets to intentionally defective grantor trusts. Each of these strategies is fairly complicated. If you have

an estate that might be taxable under current law or a likely future law, meet with an estate planner to discuss ways you can take advantage of the current low interest rate/low asset price environment.

Another opportunity to consider, or reconsider, is converting a traditional IRA to a Roth IRA.

I have discussed IRA conversions many times in past issues. In the 2017 Tax Cuts and Jobs Act, the law was changed so that a conversion of an IRA no longer can be reversed, or recharacterized, as the tax code calls it. Because of that, there are two important times to consider converting an IRA.

One time is near the end of the year. At that point, you know many of the factors that should be considered in a conversion and won’t have to make as many assumptions. Since you can’t reverse the conversion, it’s a good idea to make the decision when you can reduce the number of assumptions. The other time to consider a conversion is after a substantial decline in the IRA’s value. The price decline allows you to convert the same amount of property (such as shares of a stock or mutual fund) at a much lower tax cost than you would have incurred by doing a conversion earlier at higher prices.