Authors: Amanda Brown, Director, Trust Services and Katherine Stinson, Director, Trust Services
During this difficult time we have all had to adapt to the ongoing challenges of living through the coronavirus pandemic, including working from home, online education for our children and video calls with loved ones. This will certainly be a chapter in the history books we remember well. Some of the positives may be that our lives have slowed down and allowed us more time for hobbies we enjoy, playing with our kids or reading a book. This may also be the perfect time to consider important legal and financial decisions you may have been putting off, including your estate plan.
Here are some estate planning best practices you can do now to help get your financial and estate plan in order:
- Review your estate plan to ensure you have the necessary legal documents in place. Putting together an estate plan may seem like a daunting task but it doesn’t need to be. This article explains the basics of how to get started. If you already have an estate plan in place, that’s great! But, for the most part, estate plans need to be updated as your life changes. If your children have grown, your financial circumstances have changed, you have moved to a new state, you or your beneficiaries have separated, divorced or remarried, or beneficiaries were born or died, your estate plan should be reviewed and updated.
If you don’t have an estate plan, it’s important to put one in place because each state has different laws of intestacy. Intestacy is the state of passing away without a will, which then requires the estate to go through probate court. Without an estate plan, your hard earned assets may not be distributed as you would like.
- Include a HIPAA authorization in your power of attorney for medical decisions. The federal Health Insurance Affordability and Accountability Act (HIPAA) set privacy rules for patient records. A HIPAA authorization ensures that healthcare providers will share your private healthcare information with the people you name.
- Review your titling and beneficiary designations to ensure that the individuals you want to benefit will be the ones who receive the proceeds. Assets can be titled in your individual name, jointly with another person or in the name of a trust, all of which will have different consequences and should be coordinated with your estate plan. Review titling of bank and investment accounts, real estate and closely held company ownership. Beneficiary designations for assets such as life insurance and retirement accounts control who receives the asset upon your death, even if the beneficiary is different than what you provided for in your estate plan. If you name individuals as beneficiaries, consider naming contingent beneficiaries in the event the primary beneficiaries predecease you.
- Consider how you store your estate planning documents. Original documents can be kept by your estate planning attorney in a locked, fireproof safe. In your own records, you should keep copies, along with a high-quality digital scan, which could be saved in an online vault for easy access from anywhere. Also consider providing copies to your financial advisor, healthcare provider, successors named in the documents and others you would like to know about your estate plan. A binder with information is a great way to keep this all safe and in one place, just make sure you do not include full account numbers. Additionally, you should include relevant contact information so your loved ones know who to reach out to if necessary.
- Save a list of your digital accounts and passwords. Along with estate planning documents, everyone should maintain a list of their digital assets and how to access them. Make sure to keep this information secure and don’t share it with others.
- If you are a business owner, plan for your succession as a manager and owner of the business. If you have built a business, it may be the largest asset you own. It’s never too early to create a plan for your succession to ensure the long-term success of your business and your family.
- Consider a GRAT or an IDGT. If you are seeking more sophisticated planning strategies, consider using a Grantor Retained Annuity Trust (GRAT) or the Sale to an Intentionally Defective Grantor Trust (IDGT) to “freeze” the value of assets in your estate and pass future appreciation to family members at virtually no estate or gift tax cost. Both strategies are highly effective in today’s environment with low interest rates and asset values.
In addition to the important estate planning tactics above, now may also be an ideal time to make gifts or loans to family members. Because property values and interest rates have dropped, if you’d like to make a gift to a family member or to a trust for their benefit, consider using the $15,000 annual gift tax exclusion and the $11.58 million gift/estate tax exclusion to make tax-free gifts of depressed property that are likely to appreciate in value.
Now may also be an opportune time to make loans to family members with very low interest rates. If your family member invests wisely and has a greater return than the note’s interest rate, they will retain the upside at no gift tax cost.
While it may feel overwhelming to focus on your estate plan in the middle of a pandemic, once this crisis has passed and your life resumes to a new normal, you will be happy you made it a priority. If you need help with your estate plan, FNBO’s trust team is here to help.