COVID-19 and Estate Planning

July 1, 2020 | Newsletter

The COVID-19 pandemic has disrupted many plans including how people manage their estates. We’ve created a list of the top issues that have popped up as a result of the pandemic.

Power of Attorney

  • At the start of the pandemic, there was understandably a lot of confusion in hospitals. People who had severe symptoms were put on ventilators and isolation policies prevented loved ones from visiting or advocating for them. Although other options are now being used to treat the symptoms, there is still much that is unknown about the virus and there is always the possibility of a surge when flu season kicks in. With these risks looming in the distance, now would be the opportune time to assign a power of attorney to a trusted person. Giving someone a power of attorney would allow them to act as the agent and make decisions on the principal’s behalf. The principal can control the scope of the agent’s power and what they would be able to do with it. In a situation where the virus limits their capability to make decisions, having someone with a power of attorney would be very helpful for making sure that your affairs are in order.

Creating a Will

  • According to a 2019 Merril Lynch study, nearly half of Americans that are over the age of 55 do not have a will. With the advent of the pandemic, more people are confronting their own mortality and are becoming concerned about what will happen with their belongings. Now, would be a great time to make a will, but in the midst of such a stressful time, careful consideration should be employed by people. Retaining an attorney to guide the process would help in avoiding problems that may spring up in the future. Also, any risk of infection during the process has been greatly reduced. New York has temporarily allowed for remote notarization and witnessing of wills.

Reorganizing assets

  • As the pandemic affects markets, assets that were thought to be stable have decreased in value and some are wondering if they need to reorganize the assets they intend to pass on to others. Diversifying these assets is one way to increase the likelihood that the value of what the recipient receives is resistant to the present condition of the market. Establishing a trust is another alternative to protect the value of assets. Although we have been dealt with an unwanted disruption, the key to making it through these times is a willingness to adapt.

The Ultra Wealthy and Taxes

With the election only a few months away, the ultra-wealthy and their financial planners are looking at tax policies of the presidential candidates with a scrutinizing eye. Some are taking precautionary measures with managing their wealth as these may be the final days that they have access to favorable tax incentives.

With the recent increase by the way of the Tax Cuts and Jobs Act, a person may give up to $11.58 million per individual without being subject to an estate or gift tax. Another way of keeping wealth is through a method is called a “step-up in basis”. Normally, an individual is subject to a “capital gains’ tax upon selling an asset that has appreciated in value. However, a loophole to avoid paying a tax on the entire appreciation is by passing on an asset that has appreciated in value to an heir. The heir is not subject to a substantial portion of capital gains tax if he or she chooses to sell the asset and realize the appreciation. It’s called a step-up in basis because the value, for the purpose of the capital gains tax, is equal to the present value of the assets as of the date of the death.

Joe Biden’s tax proposal would get rid of the step-up in basis mechanism. Individuals would then lose the opportunity to reduce the amount of capital gains tax that would need to be paid. There are also fears that a Biden presidency would lower the exemption amount limits or raise tax rates. In response, financial planners have been advising their clients to give money away. Some are even planning to move to states with more tax incentives. Their need to remain in close proximity to their physical work location in states like New York have reduced after the COVID-19 pandemic struck.