As the coronavirus crisis continues to evolve, there have been unforeseen impacts on nearly all aspects of the world, including estate planning. This crisis has caused challenges in estate planning, especially with the currently volatile financial markets. Below are some steps you may want to consider regarding your estate plan during such uncertain times. The Governor of Texas has recently suspended certain statutory requirements for notaries, which will allow you to sign your Estate Planning documents from the comfort—and safety—of your own home. Here at Romano & Sumner, we have created a “standard operating procedure” that we have shared with Attorneys across the nation so that everyone impacted by the coronavirus has access to estate planning, should the unthinkable occur.
With so much concern about the danger of the virus, it is important to have an estate plan in place. Review your current estate plan to ensure that all of the information is up to date and that it includes all the necessary documents. These documents may include a will, directive to physicians or living will, trusts, health care directives, and documents granting power of attorney for both financial and medical decision making. Things to consider are that fairly recently the Texas legislature updated the Durable Power of Attorney Act, and there are now rules regarding disclosure of health information because of HIPAA—if these documents are older, they may need to be updated.
Updating Your Current Plans
As you review your estate plan, it is important to update it periodically so that it continues to reflect your wishes. The COVID-19 pandemic makes it important, now more than ever, to review your estate plan to make sure you and your loved ones are protected.
Wealth Transfer Strategies
Due to the current volatility of the financial markets, interest rates have hit historic lows and asset values have depressed. As a result, it has created a favorable time to transfer wealth, with some potential strategies explained below.
With interest rates at historic lows, now is a prime time for intra-family transactions. When a senior family member lends or sells assets to a junior family member, an interest rate must be included so that the transaction is not considered a gift. The minimum interest rate, determined by the Treasury each month, is often set extremely low compared to those charged by commercial lenders.
This low-interest rate creates an opportunity for families to use intra-family loans as a way to shift wealth amongst family members, especially if the asset appreciates at a higher rate than the interest rate. The values of the loaned or sold asset is based upon market valuation. Currently, the market value of most assets is discounted. Therefore, if you take part in an intra-family loan, when the asset value rebounds, its appreciation is outside of the senior family member’s taxable income and instead will be held by the junior family member tax-free.
Grantor Retained Annuity Trusts
The current financial environment also benefits Grantor Retained Annuity Trusts (GRATs), as they help to minimize taxes on large transfers of financial wealth to family members. GRATs allow a senior family member, known as the Grantor, to put assets into a trust while retaining the right to receive an annuity stream from the trust over a set period.
Once this period expires, the leftover balance of assets that remains in the trust is transferred to its intended beneficiaries. This transfer of assets is deemed as a gift and it is valued based upon the annuity stream the Grantor previously received in addition to the assumed rate of return. If the rate of return is greater than the assumed rate set by the Internal Revenue Service, then the beneficiaries would receive that profit, tax-free. Additionally, if the assets outperform the assumed rate these excess returns also escape estate taxation. Thus, given the market’s current low hurdle rate and depressed asset values, it makes it an opportune time to consider GRATs as an effective way to preemptively transfer wealth to younger generations.
Contacting a Knowledgeable Attorney
If you have any questions on how the current COVID-19 situation may impact your estate planning, we are ready to guide you through the legal process. We understand that right now, most things are uncertain and may be difficult to navigate, but our experienced legal team is happy to answer any questions that you may have. Contact us today to get started on or update your estate plan.