by Steven L. Sanders and Samuel J. Adams
When times are good and we’re not facing a global pandemic, one of our biggest challenges as estate planning attorneys is trying to convince others of the importance of having accurate, effective estate planning and agency designation documents in place. For many people it’s just not something they want to think about or talk about unless there’s a good reason to do so.
Unfortunately, it often takes a health scare, the death of a loved one, or some other unexpected event — a global pandemic, for example — to push these issues to the forefront. Since the outbreak of the Coronavirus weeks ago, we have certainly seen a surge in demand for legal services in connection with estate planning and agency designation documents.
To make sure you and your assets are properly provided for in the event of such an unexpected event, we generally recommend that you have in place (1) current, effective agency designation documents and (2) accurate, effective estate planning documents.
Agency Designation Documents: What Happens If I Can’t Make My Own Decisions?
Let’s start with your agency designation documents. These documents allow you to designate your preferred agents to exercise power on your behalf if you are alive but are unable to exercise power yourself. Here are some of the key questions that may cross your mind in times like these:
– If something happens to me and I need medical treatment but I’m unable to make or communicate my wishes, who will make treatment decisions for me? What if that person is unable or unavailable to decide? How will those decisions be made? How can I make sure my wishes are followed?
– If I lose the ability to access or properly manage my assets for some reason, how can I authorize someone I trust to take care of my financial affairs (e.g., to make sure bills get paid, income is deposited, etc.)? Who do I want to exercise that power for me? What will happen if no one is given this authority?
– If something happens and I lose the ability to properly take care of myself, who do I want to have the legal authority to take care of me? How can I make sure my preference is carried out?
– If something happens and I lose the ability to properly manage my assets and financial affairs for a longer period of time, who do I want to have the legal authority over my assets and financial affairs? How can I make sure my preference is carried out?
These questions can and should be answered in your agency designation documents, which include powers of attorney for property, advance directives for health care or health care powers of attorney, and HIPAA authorizations. Depending on your particular circumstances, these agency documents can be the most important documents to have in place, particularly in circumstances like these when the possibility of becoming suddenly ill and/or being separated from family members and friends is heightened.
According to a recent article from the American Medical Association, only about one in three Americans have some type of advance health care directive or health care power of attorney on file. These documents are not just for the elderly or the sick. As our exposure to severe illness increases, so does the importance of these designations. For this reason it is a good idea to establish or review your agency designation documents to make sure the proper individuals are authorized to act on your behalf.
Additionally, the applicable law and forms for agency designation documents change periodically. For example, Georgia enacted a new power-of-attorney law in 2017 that includes some additional protections and allows for some additional administrative convenience than was the case under the prior law.
Estate Planning: Keeping Up With Changes in the Law
In addition to making sure that you have accurate, effective agency designation documents in place, it’s also obviously important to make sure your estate planning documents reflect your wishes and are consistent with the major legal and tax changes that have occurred in the last few years.
For example, the estate and gift tax exemption amounts increased significantly in late 2017, so much so that many individuals should be able to greatly simplify their estate plans (or establish simple estate plans). In 2008 the estate tax exemption amount was $2 million or $4 million for a married couple. Today, the estate tax exemption amount is over $11.5 million per person, or over $23 million for a married couple. Under current law the estate and gift tax exemptions are to remain at these higher levels at least until the end of 2025.
With these higher exemption amounts in place, the overwhelming majority of individuals do not need to incorporate sophisticated tax planning into their estate plans. If your estate planning documents were prepared or last updated before 2018 and incorporate estate/gift tax planning strategies like bypass trusts, credit shelter trusts, and/or generation-skipping trusts, which are designed primarily to minimize estate tax, we recommend a review to determine whether you can simplify things for yourself, your spouse, and/or your descendants. A simpler estate plan may also allow you and your intended beneficiaries to enjoy greater income tax savings on your assets in the future.
For those fortunate enough to remain concerned with estate, gift, and/or generation-skipping transfer taxes, the economic impact of the Coronavirus may provide an opportunity to incorporate or accelerate asset transfer and/or giving strategies. Many valuable assets may have depressed values, and interest rates are especially low for planning options involving loans.
With respect to retirement account planning, in late 2019 Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which made substantial changes to how retirement accounts can be funded, drawn down, and passed on to your loved ones. For estate planning purposes, one of the key provisions of the Act eliminated the ability of younger beneficiaries who inherit an IRA to “stretch” the distributions from the inherited IRA over their lifetime.
Except for surviving spouses and a few other classes of beneficiaries with special circumstances, most IRA beneficiaries who are at least a generation younger than the IRA owner (i.e., children and/or grandchildren) are now required to distribute the entire remaining IRA balance within ten years of the owner’s death, instead of stretching those distributions out over the lifetime of the beneficiary. Because traditional IRA distributions are generally taxable to the beneficiary, the result is a significant acceleration of the distribution of the IRA and the tax that goes with it. For example, under the prior law a 20-year-old beneficiary of an IRA would be able to take distributions from an inherited IRA over some 60-plus years. Under the new law that same beneficiary is required to withdraw the same IRA completely within ten years. Also, because the annual distribution amounts are greater, the likelihood of a higher applicable tax rate on those distribution amounts, or a portion of them, is greater.
Many married individuals likely name their children as contingent beneficiaries of their IRA. For those who aren’t married, children may be named as primary beneficiaries. Although the new rules described above do not appear to allow for much flexibility or planning strategies, it is important for every IRA owner (and in many cases their designated beneficiaries) to know the rules that apply so they can plan as well as possible. For those individuals who wish to incorporate charitable giving into their plans, there may be better alternatives for IRAs.
In addition to the elimination of the stretch IRA, the SECURE Act also eliminates the maximum age at which a working individual can make contributions to a traditional IRA. As long as an individual is working, he or she can still make contributions. Previously, the maximum age was capped at 70 ½ years old. The SECURE Act also allows individuals to push back taking required minimum distributions from their accounts until age 72, instead of the previous age of 70 ½. This gives individuals additional time for funds in their accounts to grow without being reduced by distributions or taxes.
Special Exceptions for Signing and Social Distancing
The current circumstances have led many estate planning attorneys to find new and creative ways to ensure clients have access to services while complying with social distancing and other public health guidelines that restrict person-to-person contact. In Georgia, Governor Kemp issued an Executive Order on April 9, 2020, that allows for notarization and attestation of estate planning documents by real-time audio-video communication technology during the duration of the public health emergency. While there are a number of technical requirements, as a practical matter this order allows clients to create or update estate planning documents while practicing social-distancing.
The COVID-19 pandemic has caused many of us to take a step back and evaluate what’s most important to us. Part of that is, or should be, taking steps to make sure our loved ones are provided for as effectively and efficiently as possible if something happens to us.
If you don’t have agency designation and/or estate planning documents in place, or if you haven’t reviewed or updated them in a while, we recommend that you contact a qualified estate planning attorney. Even if these documents are never needed, or are not needed for a long time as we all hope, in our experience there is no substitute for the sense of relief and satisfaction that comes with the knowledge and confidence that you and those you love will be taken care of if something happens.