The pandemic is both creating a greater sense of estate planning urgency and challenging the estate settlement process. These action items can provide peace of mind during this difficult time.
A client recently reached out to us with news of his parents’ untimely deaths – just 24 hours apart. This client was the executor of their estates and had little information about their estate plans or their assets. And with COVID-19 containment measures in place, he was unable to travel out of state to his parents’ home, attend their funeral in person or work through the estate settlement process. As a result, he asked for our advice on how to make his own estate easier for his heirs to manage.
This situation highlights how the pandemic is exacerbating an already-difficult time period and process. Current challenges include:
Significant delays in opening probate given backlogged and, in some instances, closed courts
Inaccessibility to funds needed to pay expenses and prolonged exposure to risk associated with illiquid assets or concentrated stock positions, due to backlogged courts
Difficulty securing, valuing, inventorying and distributing personal property, particularly where decisions have not already been made, due to family members’ inability to travel and review items together
The inability of executors to perform certain duties given travel restrictions, closed or limited business operations (e.g., appraisers, contractors, etc.) and other limitations
Heightened difficulty valuing illiquid assets amid an uncertain business and economic climate
At the same time, many individuals understandably feel a greater sense of urgency to ensure their estate plans are in good order but also question whether meeting with their lawyer or other advisors is even an option. Fortunately, new technology and state laws authorizing the use of electronic signatures, virtual witnesses and online notarization (whether permanent legislation or temporary exceptions) enable clients to modify their estate plan documents even during this time of crisis.
Below are some steps we encourage clients to undertake with their advisors in any environment – but particularly now.
Ensure your estate plan is in good order
Consider whether you have an estate plan in place and, if so, when you last reviewed it. Below is a list of core estate plan documents you should have to help safeguard your intentions and the well-being of loved ones.
End-of-Life Care Documents:
Property Power of Attorney: Provides another person legal authority to act on your behalf with respect to financial, investment, business and tax decisions
Health Care Power of Attorney: Allows you to name an individual (“Health Care Agent”) to make medical decisions on your behalf if you are unable to do so yourself
Advance Medical Directive (or “Living Will”): States your wishes for end-of-life care that can be used by your Health Care Agent in making treatment decisions
Will:
Directs how your individually titled assets will be distributed after death. A common estate plan is for the will to distribute all assets to a revocable living trust (commonly referred to as a pour-over will).
Revocable Living Trust:
Used to manage your property during your lifetime, during any period of incapacity and after death
If funded during your lifetime, can provide continuity and access to funds following death when your assets might otherwise be inaccessible until probate is underway
While revocable living trusts are always critical tools, a fully funded revocable living trust may be even more valuable in the current environment, given significant pandemic-related delays to the probate process
Consider including a Letter of Wishes regarding Tangible Personal Property in your estate plan
Many estate plans simply direct distribution of tangible personal property in equal shares to family members (i.e., usually the spouse, then children). Increasingly, however, clients are opting to leave a supplemental “Letter of Wishes” or other statement of intention to guide their executor or trustee in the distribution of these items. Because tangibles often carry significant emotional or sentimental value, dividing those assets without further guidance can often lead to family conflict. A simple Letter of Wishes, with which you have contemplated family members’ affinity for certain items, may help preserve the peace.
Test Your Plan
A Stress Test For Your Estate Plan
Request our guide for reviewing your plan for common issues.
Inventory assets and align account titles and beneficiary designations with your estate plan
While estate plan documents, once executed, often have a fairly long shelf-life, assets and liabilities change on an almost daily basis. Creating, maintaining and updating a list of everything you own and owe, including account titles where relevant, will be invaluable for whoever settles your estate. That list should include bank and brokerage accounts, closely held businesses and real estate, as well as tangible personal property, such as fine art, antiques, jewelry and other valuable collectibles.
This unprecedented period also offers a good reminder to review and confirm asset titles and beneficiary designations. An asset’s title (e.g., joint with right of survivorship vs. tenants in common) determines how it will transfer at death. Further, certain assets, such as life insurance policies, annuities and retirement accounts, pass by beneficiary designation. It is important to review and update these designations, particularly if you have had any changes to your family, such as marriage, divorce or the birth of a child.
What other steps can you take today?
Transfer assets in your individual name to your revocable living trust
If you intend to have all of your assets owned by your revocable living trust at death in order to avoid probate, this may be a good time to review your bank and investment accounts and transfer title from your individual name to the name of your revocable living trust.
Assign your tangible personal property to your revocable living trust
Do not overlook tangible personal property. If you own valuable artwork, antiques, collectibles and jewelry, assigning these assets to your revocable living trust prior to death will keep them out of probate. And for tangible personal property with little or no value, transferring ownership to your revocable living trust during your life can reduce the administrative burden of dealing with it after your death.
Confirm the title to your real property
Consult with your attorney to confirm whether your real property is titled in a form that will achieve your overall estate planning objectives.
Review, and where necessary, amend your fiduciary designations
We also recommend regularly reviewing your fiduciary designations, including your estate executor, trustee(s) and guardian if you have minor children. You may be surprised to find that the circumstances of one of your designees have changed. Perhaps one of them has moved overseas or is unexpectedly caring for a loved one, constraining their time and ability to serve in the role. Speak to your designated fiduciaries and make sure that they know what you are asking them to do, and that they are in fact willing to do it. Also, if you haven’t already, consider whether designating a corporate fiduciary – rather than or in addition to an individual – might make better sense for your situation and your loved ones. A corporate fiduciary offers specialized expertise, objectivity and ample time to fulfill the role – doing so is its fulltime job.
Provide liquidity
One often overlooked estate planning consideration is liquidity. If you own a significant amount of illiquid assets, including numerous residences, valuable art or even closely held business interests, your estate may owe taxes based on those assets’ values at the time of your death or shortly thereafter. And if your estate does not also have sufficient liquid assets, your fiduciaries may not be able to cover the expense or may be forced to sell your illiquid assets at depressed prices.
If a significant portion of your wealth is in illiquid assets, talk to your advisors about analyzing your estate to determine its liquidity, including in the event of an abrupt market decline.
Stress test your estate plan
In addition to illiquidity, there may be other unintended issues or conflicts within your estate plan. For example, when we comprehensively review, or “stress test,” our clients’ plans with them, we often find unused lifetime gift tax exclusions, inflexible trust terms and more significant amounts of wealth transferring to children than intended. To avoid these issues, consider reaching out to a Northern Trust advisor to perform a stress test.
Create and communicate lists of other important information
As tedious or unnecessary as it may seem, consider creating a simple A to Z list, containing names and contact information of your important advisors, doctors and other critical information that may be invaluable to the people acting on your behalf. For the same reason, you should also create a list of digital accounts, passwords and other important information.
Develop a Communication Plan
Consider opening the lines of communication between and among your beneficiaries, your fiduciaries and your professional advisors, including charitable beneficiaries, business partners and other interested parties. This can be done gradually and over time as children and grandchildren come of age. The idea is to develop a transparent and collaborative environment among family members and key stakeholders in which information about your wealth transfer and estate plans, as well as your goals and wishes, can be shared. Doing so enables you to address the “Why?” questions that are often asked post-death when you are no longer able to answer them.
Lean on Your Advisors
The above action items may seem overwhelming during an already difficult time, but your advisors are here to help. Please reach out to a Northern Trust advisor for help with any of the following steps:
A full list of estate planning action items
Help revising your estate plan in coordination with your outside advisors, including performing a stress test
Access to our Personal Information Booklet, which can help you inventory your assets, document important contact information, provide final instructions and more
Additional information on our ability to serve as one of your fiduciaries
Test Your Plan
A Stress Test For Your Estate Plan
Request our guide for reviewing your plan for common issues.
