COVID-19 Estate Planning Update

March 26, 2020

As the U.S. braces for the continued impact of the coronavirus (COVID-19), well-advised clients are taking the time to revisit their basic estate planning documents, consider wealth transfer opportunities resulting from the current economic instability and carefully assess their fiduciary duties. By doing so, clients can remain steady at the helm during these challenging times and better secure their families’ future.

Knowing that certain basic estate planning documents are in place can bring significant peace of mind. An up-to-date health care directive will ensure that the individual you trust most will be empowered to make health care decisions for you in the event you are unable to do so. Similarly, a power of attorney will enable your designee(s) to manage your financial affairs on your behalf, if needed. Finally, by reviewing your Will/Revocable Trust Agreement, forms of account ownership and beneficiary designations, you can ensure that your estate plan effectively accomplishes your objectives in a tax-efficient manner that suits your family’s current and future needs.

For legacy-minded individuals, market volatility, low interest rates and high gift tax exemption amounts have converged to create a very favorable environment for lifetime wealth transfers. Techniques such as gifts and sales to dynasty trusts and grantor retained annuity trusts can take advantage of today’s low asset values and interest rates. By making a transfer at this time, virtually all growth and appreciation over the current value of an asset can be transferred for the benefit of your descendants free of any gift or future estate tax. 

Finally, for individuals serving as an executor, trustee, agent under a power of attorney or legal guardian, it is imperative that you understand your fiduciary duties and exercise prudence and diligence in the face of unprecedented uncertainty and market instability. Fiduciaries must also ensure that all required tax returns and tax payments are submitted timely. As of the date of this publication, the IRS has not issued guidance that would extend the deadline for many fiduciary reporting and tax payment obligations, including (but not limited to), estate tax returns and payments, basis information reporting for beneficiaries of inherited property, returns reporting certain transactions with foreign trusts and gifts from nonresident aliens or income tax returns and payments due prior to July 15, 2020 for estates that are fiscal year taxpayers. Furthermore, for individuals who made gifts during 2019 and are required to file a gift tax return, it is important to note that, as of the date of this publication, the IRS has not extended the deadline for filing a gift tax return or paying any gift tax due.

If you have questions about your existing estate planning documents, wealth transfer techniques that may be appropriate to your circumstances, your fiduciary duties or your tax filing and payment obligations, or if you need new or updated estate planning documents, please contact one of the senior members of our Trusts and Estates Department listed below.

Katy H. Donlan at +1 212 592 1522 or [email protected]

© 2020 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.