Estate Planning In A Pandemic

Susan Rothwell, Partner

April 13, 2020

Note: Current Status of the Surrogate’s Courts.  As of this writing, the New York Surrogate’s Courts, which deal with wills, estate and trust issues, guardianships and adoptions, are open right now on a limited basis and only for essential and urgent matters.  What constitutes an essential and urgent matter for the Surrogate’s Court is being decided on a case-by-case basis and depends on which county you are in.  At the moment, anyone in NY county who needs access to a Surrogate’s Court Judge on this “essential” basis may have a private phone call with the Chief Clerk guidance and must submit any paperwork by regular mail.  No one may walk into the court without calling ahead.  All trials and hearings including guardianships and adoptions are postponed until further notice.

Estate Planning Now

In light of the devastating death toll and the ongoing threat of contracting COVID-19, it’s not surprising if you’re thinking about estate planning.  Here are some things to think about when you review your estate planning documents or consider drafting new ones if you don’t yet have a will or a trust.   Remember the essential purpose of estate planning is to provide for your own needs – for those you care for – and for those upon whom you are depending.

This article will discuss two topics:

  1. What you should think about as you review your estate planning documents (or are beginning to think about estate planning for the first time), and
  2. How a revocable trust can circumvent the requirement to petition the court to get access to a decedent’s assets during the pandemic and beyond.

Questions To Consider When Reviewing Your Estate Planning Documents

Here are some questions for you to keep in mind:

If you should suddenly be rushed to the hospital, do your family or friends know where to find your estate planning documents?  They should be in a drawer or safe place, but not in a safe deposit box; if you were to die, a bank would require a court order before allowing anyone to access the box.

Do you have a list of your on-line accounts and passwords?  This should be stored in the same place as your other estate planning documents.

Do your have copies of your beneficiary designation forms?  Do you remember filling out these forms – it may be many years ago – for retirement assets or when you opened a bank or investment account or purchased a life insurance policy?  Today these forms may exist online (on the website for Vanguard, Fidelity, etc.).  Perhaps you had a will drafted years after and forgot about them.  Remember that any account that has a completed beneficiary designation form results in those assets passing outside of your will at the time of your death (unless you named your estate as the beneficiary).  So, for example, if your entire wealth is held in investment accounts and you completed a beneficiary designation form on each account that named your daughter, all of your assets will go on death to your daughter regardless of what your will says.  Perhaps your will leaves everything to your spouse.  That doesn’t matter.  The beneficiary designation forms, in effect, take precedence over the will.  The will is effective only over the assets in your estate that do not pass by beneficiary designation.  So, you should go back and check those beneficiary designations to make sure they don’t defeat the instructions for distributing assets under your will.

Do your estate planning documents reflect your current situation and thinking?  Are those named as beneficiaries still the people you wish to benefit? Have their circumstances changed?

Are those whom you have named as Executors of your Will, Trustees of a trust, Health Care Proxies and Agents under a Power of Attorney (and as alternates) still appropriate?  Are they still able and willing to act?  Do they remember that you gave them these powers?  Have you spoken to them about how to manage your affairs if they have to step in?  A will and other estate planning documents enable one to name a person or people to be in charge of making financial or medical decisions for you while you are alive but not able to act for yourself as well as a person to be responsible for carrying out the terms of your will when you die.  Here is a quick review of the names and roles of these decision makers:

  1. Executor.  The person that you appoint under your will who will have the legal authority to manage your estate, pay your debts, final bills and taxes and distribute your property to your beneficiaries.
  2. Trustee.  If you’ve set up a trust, you’ve appointed a Trustee to be responsible for administering the trust and making sure that your wishes as stated in the trust agreement are carried out.
  3. Your Health Care Proxy is the person you’ve appointed to make medical treatment decisions for you if you are not able to speak for yourself.
  4. Your Agent under a Power of Attorney is the person you appoint to step in and access your financial assets and pay your bills while you are alive if you are unable to manage your own financial affairs.

In light of the broad legal powers given to the individuals who fill these roles, are you comfortable with your choices?

Here are some practical questions regarding these designated persons:  Do the persons named in your documents have copies of those documents in an emergency?  Do your doctors each have a copy of your Health Care Proxy?  Does your Health Care Agent have a copy of the your Living Will (the document that states that if you’re in an irreversible vegetative state, you do not wish to be kept alive)?

Additional Considerations for Non-U.S. Citizens

If you are not a citizen of the United States, additional questions may be relevant.  If you are not a United States citizen, but spend significant time in this country and own assets located here – such as real property, art work, jewelry, vehicles or other items or collections of value, have you planned for potential U.S. estate taxes on that property?  Remember foreign nationals can only exclude $60,000 of their U.S. estate from U.S. estate taxes absent an estate tax treaty between the U.S. and your country of residence.  Similarly, if you are a United States citizen, or a foreign national residing in the United States, with assets in another country, does your estate plan provide liquidity for the payment of U.S. estate taxes on your worldwide assets?  Estate taxes are due nine months after the date of death.

Planning Considerations

For people with wealth, this crisis still presents opportunities for moving wealth to younger generations and planning to minimize estate taxes.  You should consider possibilities such as gifting assets or making low interest loans to the people you care about to assist those that may be in financial distress and in order to move the appreciation on those assets out of your taxable estates.  The federal estate tax exemption amount (the amount that an individual can shelter from federal estate tax) currently $11.58 million, is slated to fall back to $5 million (adjusted for inflation) at the end of 2025.  Or that amount could change sooner if there is change in political parties next fall.  So this is an ongoing consideration if you will have taxable estate.

Revocable Trusts

This brings us to a second topic: revocable trusts and how they may enable your family to bypass the court to obtain access to your assets.

I noted above that currently it is difficult to access the Surrogate’s Courts due to the Covid19-related closures.  Court personnel are only processing legal issues that they consider essential and urgent and there isn’t much guidance on what will qualify.

One would think that your death and the ability of your family or loved ones to get control over your assets in a moment of economic chaos would qualify as an urgent matter.  But the court may not see it that way.  And your family may have to jump through hoops to get permission to submit a filing such as a petition to probate a will that requires action by the court.

Under normal circumstances, when someone dies, the family or loved ones must petition the court, submit the original will (if there is one) and wait for the court to review and approve the petition and will and award Letters Testamentary (Letters of Administration, if no will) to the person named as executor under the will.   Without those “Letters” all the assets of a decedent are frozen at death and can’t be accessed by anyone.  It doesn’t matter that the stock market may be taking the biggest nose dive since the 1930’s.  Nobody can touch the assets.  So, your loved ones may be caught in a very difficult emotional situation trying to cope with a loss as well as imminent financial harm.

Is there anything you can do now to make sure your family and loved ones don’t find themselves in this position?  The answer is yes, one can set up a revocable trust to hold one’s assets.  The revocable trust includes instructions about what happens to the assets on your death and in that respect functions like a will.  The difference is that nobody has to go to court to be able to access the assets; the trustee that you’ve appointed takes over and can access all the assets in the trust immediately.

Here is a brief review of how a revocable trust works:

You are the trustee in charge of managing the assets while you are alive and healthy and you appoint someone you trust to step in as trustee if you become too ill to manage your financial affairs or die.  Your Co-trustee then maintains control over the trust assets and does not have to go to the court to get Letters Testamentary in order to legally access your assets.  Therefore, there is no disruption in managing the assets; the trustee has immediate access.   Don’t forget that while an agent under a Power of Attorney can theoretically step in to manage your finances when you become too sick to manage them yourself, the agent’s power to access the assets ends on your death.  So the Power of Attorney does not work for this purpose.  Your family would still have to petition the Surrogate’s Court to get Letters Testamentary before anyone can access your assets.

In order for the revocable trust to work, you have to re-title your assets from your own name into the name of the trust.  For example, an investment account’s owner has to change from “John Smith” to “The John Smith Revocable Trust.”  There are no tax consequences of having a revocable trust because the trust uses your social security number.  You still have the same access to your assets to pay bills, manage investments and so on that you had before you transferred your assets into the trust.

I hope these suggestions are helpful and give you the confidence and momentum to think about these issues now.  Being prepared and having some control over what will happen are ways to quiet anxiety and provide peace of mind.  If you consider making changes to your estate plan, please reach out to an estate planning attorney for assistance.

*Required Disclaimer: This alert is provided for informational purposes and does not constitute, and should not be considered legal advice. Specific facts and circumstances will differ. Neither the transmission nor the receipt of this information shall create an attorney-client relationship between the transmitter and the recipient. You should not take, or refrain from taking, any action based upon information contained in this alert without consulting legal counsel of your own choosing. Under applicable professional rules of conduct, this informational publication may be considered attorney advertising.