Estate Planning During a Time of Crisis

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.

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).

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.

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?

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.

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.

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.

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.

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.