Now is the time to maximize your estate plan

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As families navigate through the difficult times created by COVID-19, it is important to focus on our families’ well-being and to think ahead. Important decisions may need to be made and if so, it’s essential that you review your estate plan to ensure everything is well-structured and your wishes will be carried out as intended.

Below are a few considerations as you review.

1) You should ensure the fiduciaries that are currently named within your estate planning documents have the appropriate responsibility. Ask yourself, who should be in charge?

  • Patient advocates named under durable powers of attorney for health care and HIPPA authorization
  • Agents named under durable powers of attorney for financial decision making
  • Personal representatives named to administer a will
  • Guardian(s) named in a will, or separate document, for the care of minor children
  • The trustee named to administer a revocable trust

As intentions or circumstances have changed over the years, along with family and/or financial situations, you may determine the individuals named are no longer suitable or capable to serve in that capacity. Should you need to select an alternative and a family member is not an option, you could consider a corporate fiduciary to serve in that role on your behalf.

2) Your account titling and beneficiary designations are critical to achieving your overall estate planning goals. If done incorrectly, assets might not pass to the intended beneficiaries. To avoid probate, the following documents and titling should be reviewed:

  • Bank, investment, retirement and health savings accounts
  • Annuities
  • Life insurance policies
  • Real estate
  • Business interests
  • Personal property

3) With the dramatic decline in recent market prices, another recommendation would be to review your will and trust provisions along with your transfer-on- death (TOD) beneficiary designations. You should confirm the distribution language in the document is appropriate for the current size of your estate.

For example, a trust may state that upon the grantor’s death, one or more beneficiaries are to receive a large fixed dollar amount as part of their inheritance. With the current drop in the market, a fixed dollar amount may no longer be appropriate or could distort the disposition of your wealth. An alternative would be to have the trust distribute a fraction or percentage of the trust assets rather than a fixed amount as originally planned.

Transfer through planning strategies

Although the COVID-19 crisis presents numerous challenges for us right now, it also provides opportunities for the future. In addition to reviewing essential documents within your estate plan, it’s the perfect time to find efficient ways to transfer wealth to future generations.

1) Have you considered gifting an asset that could potentially appreciate over time? With low interest rates and low market values, it’s an opportune time to do so. Income that is generated on an asset that is gifted may be taxed to the recipient at marginally lower federal income tax rates, and not taxed to the donor. It also means that less of the donor’s federal gift tax exemption (currently $11.58 million) will have to be used to shelter that lifetime gift from federal taxes.

2) Intra-family loans, governed by a loan agreement, can be used to transfer wealth in low interest rate environments as well. If prepared and administered correctly, parents can transfer wealth to the younger generation without having to use their lifetime gift tax exemption, and the borrower obtains the advantage of a very low interest rate on the loan (typically set by Applicable Federal Rate). Under this structure, there’s a higher probability the borrower’s investment will outperform the interest rate on the loan, and the appreciation beyond the loan interest is then passed to the borrower free of gift and estate taxes.

3) For individuals who have a large estate that could potentially be subject to federal estate tax, a Grantor Retained Annuity Trust may be a powerful planning tool. With a GRAT, the grantor has the ability to contribute assets into a trust while retaining the right to receive a fixed annuity stream from the trust over a period of years. After the period of years is over, the balance of the assets held in the trust pass to the intended beneficiaries with no estate tax consequence. When planned effectively, a GRAT strategy can benefit families by transferring assets free of gift or estate tax, freezing or reducing the value of the estate and preserving as much applicable exclusion as possible.

4) For those who have charitable inclinations, a Charitable Lead Annuity Trust also is an option. This structure also allows the grantor to transfer assets to a trust, but instead, a charity receives the annuity stream rather than the grantor. The grantor receives a 100% upfront tax deduction for the gift made to the charity while passing assets to their heirs free of gift and estate tax.

Stacy Beekman is a Grand Rapids-based trust relationship officer for Greenleaf Trust. She has 20-plus years of experience providing trust administration services to individuals and nonprofit organizations. George Bearup, J.D., is a senior trust advisor. He has 46 years of practical experience as an estate planning attorney with experience in estate, fiduciary, and tax law.

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