The COVID-19 crisis has caused many people to realize that life-changing events can happen unexpectedly and turn their lives upside down. The myriad of challenges caused by the COVID-19 pandemic have given many pause to rethink their concerns and priorities.
Estate planning is one area that should get attention, and possibly revision, as a result of the impact of current events .
Here are some things to consider as you review your existing plan.
Are all your estate planning documents up to date and available?
- Your advance health care directive. This document, which is sometimes called by different names, memorializes your wishes concerning your medical treatment should you become ill or incapacitated. It includes directives about your end-of-life wishes as well as other decisions about your care and treatment. It also names the individuals you want to act on your behalf if you are incapacitated and gives them the right to access your medical records. The latter point is especially important because without a legal document in place, privacy laws may prevent a hospital or doctor from releasing your records to them.
- Your financial durable power of attorney. This document allows you to designate an agent to access your assets and act on your behalf regarding financial decisions if you are incapacitated.
- Your will and trusts. Reviewing these documents is especially important if there have been changes in your personal, family, health or financial situations since the documents were originally executed.
Are your finances in order?
The currently historically low interest rates make this a good time to review the financial aspects of your estate plan. Some tax planning strategies have become more advantageous because of the current financial and economic environment. These include:
- Considering intra-family loans to children or certain trusts. The interest rate for these loans uses the applicable federal rate (AFR), which is the lowest interest rate that can be charged on a loan. The proceeds of the loan can be used for purposes ranging from purchasing company shares to funding a mortgage. There are pros and cons to these loans that need to be considered, but overall, they can be attractive at current interest rates.
- Creating one or more trusts that may allow the creator to transfer assets for a term of years in exchange for an annual annuity. This annuity is taxed at the IRC § 7520 rate, which is based on the AFR, which is currently very low.
The above considerations can be complicated. Before making any significant decisions, be sure to discuss your options with your financial, tax and legal advisors before taking action. Your specific goals and circumstances will guide the decisions that are best for you and your loved ones.
- Planning Now for the Possible Lowering of the Estate Tax Exclusion - June 14, 2021
- Post-Pandemic Updating: Beneficiary Designations - June 13, 2021
- Post-Pandemic Updating: Your Trust or Will - June 12, 2021
