Estate Planning During the COVID-19 Pandemic

April 28, 2020

By Karen Goldberg

While you are at home with your family during these uncertain times, you may be contemplating your own mortality. What naturally comes to mind is your last will and testament – is it up-to-date? And if you don’t have one, you may now urgently want one.

Although you may think that you need to wait until this crisis is over to execute a new will, that may not necessarily be the case. For those in New York, Governor Cuomo has issued an executive order authorizing the virtual execution of wills and other estate planning documents. The governors in other states may have issued similar orders. 

In addition, because property values and interest rates have dropped, now is an ideal time to implement certain estate planning strategies. The simplest strategy is to use the $15,000 annual gift tax exclusion and the $11.58 million gift/estate tax exclusion to make tax-free gifts of depressed property that is likely to appreciate in value (perhaps by simply returning to its pre-COVID-19 value).

Another relatively simple strategy is to take advantage of the historically low interest rates to make loans to children – for example, a loan with a four-to-nine-year term would carry interest at only 0.99% for April 2020 and 0.58% for May 2020. If the child invests wisely and has a greater return than the note’s interest rate, they will retain the upside at no gift tax cost to their parents.

More sophisticated planning strategies include the Grantor Retained Annuity Trust (“GRAT”) and the Sale to an Intentionally Defective Grantor Trust (“Sale”). These “freeze” techniques permit a parent or grandparent to pass an asset’s future appreciation to heirs at virtually no gift or estate tax cost; both strategies are highly effective when values and interest rates are low. GRATs and Sales each have different “hurdle rates” that must be exceeded for the technique to be effective. For GRATs set up in April and May 2020, that rate is 1.20% and 0.80%, respectively; for Sales, that rate is the interest rate on the note for the sale; this is typically the federal mid-term rate, which is 0.99% in April and 0.58% in May 2020. Again, these rates are the lowest they have ever been, and combined with depressed property values, make it a perfect time for GRATs and Sales.

During this crisis, it may feel overwhelming to focus on your estate plan, but once this is over, you will be happy you made it a priority.  Planning can secure you and your family’s future, offering comfort during this difficult time.

About Karen L. Goldberg

Karen L. Goldberg in the Personal Wealth Advisors Group leads the trust and estate practice in the New York office. Karen specializes in estate planning for closely held business owners, senior corporate executives and other high net worth individuals.