For individuals who already had estate plans in place, the COVID-19 pandemic provided a wake-up call to review and update documents and a reminder to take advantage of changing economic and political landscapes.
In 2020, for example, the wife of Bill's best friend lost her battle with COVID-19 and died alone in a hospital bed. There was no estate plan in place, and Bill saw the heavy toll dealing with a tangled financial estate and complicated family dynamics had on his friend. Instead of taking the time to grieve, his friend spent all his time talking to attorneys and mediating disputes between his children. As someone whose philosophy was to always live life to the fullest and never plan for the worst, the importance of estate planning suddenly became very clear to him. Bill did not wait long to put a detailed estate plan in place with the help of qualified estate planning professionals.
Like Bill, many other Americans are viewing estate planning in a new way after the COVID-19 pandemic. During these unprecedented and unpredictable times, people are understanding the value of a comprehensive estate plan.
Let's explore four major ways that the COVID-19 pandemic has changed the way that Americans think about estate planning.
Traditionally, estate planning has been a topic that many Americans have been apathetic or skittish about. By most estimates, more than half of Americans do not have a will in place. Estate planning brings up uncomfortable conversations, and no one likes to be reminded of their own mortality. However, one thing that the COVID-19 pandemic has shown all of us is that you never know what is around the corner. Suddenly, you cannot easily ignore topics like sickness and death, and Americans are rushing to put a comprehensive estate plan in place. People are now motivated to complete a task that, for many, was once left on the backburner.
In a time of uncertainty, estate planning can help individuals gain back control. It helps to answer all those scary “what if” questions. What if something happens to me? Who will get my property? Who will look after my children? Will my family be provided for? Answering all these questions can seem overwhelming, but estate planning professionals are trained in this area and will help guide you through the process. Once your estate plan is complete, you will feel a sense of relief knowing that you and your family are protected.
Americans now realize that estate plans are for everyone - not only the rich and elderly. No matter your age or net worth, if you die or become incapacitated without an estate plan, your family can be left with a tangled mess when they should be focusing on grieving. Preparing a clear and detailed estate plan is a tremendous gift to give your loved ones. The COVID-19 pandemic has shown all Americans that the time to create an estate plan is now.
The first consideration nearly all Americans have when estate planning is what will happen when they die. But the COVID-19 pandemic has taught us that estate planning involves more than planning for your death and making a will. You must also think about what will happen if you become incapacitated and are unable to make and communicate decisions. Some individuals are barely affected by the COVID-19 virus, but others can become seriously ill. Depending on the severity, patients may be placed on ventilators or life support.
A health care power of attorney allows you to decide ahead of time who will make health care decisions on your behalf if you become ill or incapacitated. Naming an individual you trust to be in charge of your health care decisions can give you peace of mind that your wishes will be carried out even if you cannot communicate them. A health care power of attorney also relieves your loved ones of the burden of making emotional and complicated decisions together as a group.
The COVID-19 pandemic has also forced Americans to recognize the importance of having a financial power of attorney in place. In a financial power of attorney, you appoint an agent to make financial decisions on your behalf. The agent can pay bills, write checks, make deposits, sell or purchase assets and sign tax returns, among other things. It is critical to have someone who can make sure that your bills are paid and your business maintained, taking care that everything is handled when you return from the hospital.
In addition to powers of attorney, Americans are drafting living wills, also called advance directives. This legal document has written instructions regarding your preferences for end-of-life medical care. In a living will, you can specify when and how long doctors should keep you on certain medical equipment or treatment. Regarding COVID-19, the decision of whether or not to be put on a ventilator is particularly relevant. By planning ahead, you can ensure that you will receive the medical care you want, and you will relieve loved ones of decision-making during times of crisis and grief.
If you do not plan for incapacity, your loved ones may have to go through a court proceeding in order to act on your behalf. These court proceedings can take months, involve the temporary appointment of strangers as caretakers, and cost thousands of dollars.
- Last Will and Testament
- Financial Power of Attorney
- Healthcare Power of Attorney
- Living Will
A last will and testament outlines who will get your assets after you die. In the will, you pick the person in charge of overseeing the distribution of your estate (the executor or personal representative). A will should also include guardianship designations if you have minor children. If you die without a will, your assets will be distributed according to your state's intestate laws.
A trust is a seperate entity that holds your property. You appoint a trustee to manage the property in the trust. A trust gives you greater flexibility and control than a will. It also avoids probate, a public, costly and time-consuming court process. There are various types of trusts that serve different purposes.
A financial power of attorney gives a person of your choosing the authority to manage your financial affairs and protect your property on your behalf.
A healthcare power of attorney gives an individual of your choosing authority to make health care decisions on your behalf when you become incapacitated or incompetent.
A living will states what kinds of life-sustaining medical care you want to recieve if you become incapacitated. End-of-life medical decisions commonly addressed in a living will include: CPR, mechanical ventilation, tube feeding, dialysis, and organ donation.
For individuals with estate plans in place, the COVID-19 pandemic has prompted them to review their documents and ensure that their estate plan is up to date. For many Americans, it could have been many years since they have looked at their plan. An estate plan that does not reflect your current wishes can sometimes be worse than no plan at all. You never know when something could happen to you and procrastinating an estate plan review can be a devastating mistake. An old estate plan will trump any decisions that you convey orally at the end of your life.
Your estate plan should be a living document. As your life changes, your plan should change along with it. Routine reviews every 12 to 18 months with a team of estate planning professionals is a critical part of maintaining a healthy estate plan. In addition to periodic reviews, you should review your estate plan whenever you or a loved one go through a significant life event, such as getting married, having children or grandchildren, moving to another state, disability, illness, death or receiving an inheritance.
It is important to review more than just your will. You should look over all estate planning documents, including any assets with beneficiary designations that transfer outside of probate. Examples of items that you should keep updated include:
- Living wills
- Powers of attorneys
- Financial accounts
- Life insurance
- Real estate
During a review of your estate plan, you and your team of estate planning professionals should:
- Check that documents are properly signed, witnessed, notarized and recorded.
- Confirm that beneficiary designations are in accordance with your current wishes.
- Review appointments of health care agents and attorneys-in-fact.
- Confirm that the named executors and trustees are still suitable, able and willing to serve.
- Confirm that the decisions regarding the distribution of your assets reflect your current wishes.
- Review and update estate plan funding, especially for newly acquired assets.
- Confirm that your estate plan reflects any changes to the federal and state tax laws.
- Update a location list of important documents and update a list of usernames, passwords and security questions for online accounts.
- Discuss any changes to the estate plan with your family.
In the wake of the COVID-19 pandemic, low-interest rates and reduced asset values enhanced the ability of Americans to engage in cost-effective wealth transfers. The economic situation created a window of opportunity for individuals to provide more to their intended beneficiaries. During this time, many Americans realized the benefit of using sophisticated estate planning strategies to take advantage of a volatile economic and political landscape.
For example, reduced asset values made the pandemic a good time for some individuals to take advantage of tax-exempt gift giving. In 2022, a married couple could transfer $24.12 million to their heirs free of estate and gift tax. Unless Congress extends the sunset provision in the tax-reform bill, the gift tax exemption is set to drop back to $5 million in 2026.
In addition, historically low interest rates presented unique estate planning and wealth preservation opportunities. For instance, during the COVID-19 pandemic, it would have been a smart time to make or refinance loans to family members. A loan would allow family members to invest in assets that would appreciate outside the taxable estate.
It is always necessary to consider your personal financial plans, cash flow needs and goals when making estate planning decisions. You should create an estate plan that is consistent with your lifestyle and retirement needs. Every individual's situation is unique. You should discuss all asset preservation opportunities with qualified estate and financial planning professionals.