This may sound harsh, but with the US COVID-19 death toll now over 100,000, the first and foremost issue is to be sure that you do indeed have an estate plan. If you do not, the people you want to inherit your assets after your demise may not get what you want them to.
If you do not have an estate plan, state law will determine who receives your property, which may not match with your actual wishes. Also, without an estate plan and a revocable living trust, your estate may be subject to probate which will cause your heirs to incur additional legal fees and expend time which could have otherwise been avoided.
If You Already Have an Estate Plan
If you do have an estate plan in place, you may need to rethink your strategies due to the COVID-19 pandemic. Even before the coronavirus played havoc with everyone’s financial plans for the year, 2020 looked like a good time to revisit estate plans. A federal election on the horizon brings the potential to change some of the estate tax reforms made by the law commonly known as the Tax Cuts and Job Acts (TCJA).
However, the disruption caused by the coronavirus makes now a good time to revisit estate plans for other reasons. Market volatility has suppressed the values of financial and real estate assets, which means transferring those assets might be more advantageous in the current uncertain environment. This unique combination of events presents some reasons why adjusting your estate planning in 2020 may be more pressing than ever.
While the long-term economic effects remain to be seen, it is clear that financial markets and business values are on the downslide. This makes taking a closer look at estate planning especially important right now for individuals with real estate holdings and who own closely held family businesses. The levels of business uncertainty may mean that transferring business interests now may allow for larger discounts for lack of marketability and minority interests.
Furthermore, the TCJA nearly doubled the thresholds for estate tax and gifting limitations when it went into effect in 2018. For 2020, the federal lifetime exemption is set at $11.58 million per person.
If you’re planning to take advantage of current exemption thresholds by gifting directly to your beneficiaries, now is the time to start thinking seriously about making gifts. The depressed values of the assets may be able to help you transfer more assets now without the risk of incurring estate or generation-skipping transfer (GST) taxes.
And finally, the Coronavirus Aid, Relief, and Economic Security (CARES) Act makes charitable giving even more favorable for estate planning. For 2020, it changes the deductibility of charitable contributions for individuals who don’t itemize their federal tax returns. Individuals can take a new $300 above-the-line deduction for cash contributions to a qualifying charity. It also allows charitable deductions to individuals who do itemize their federal taxes.
What do you think of these tips? Are there any other estate planning or financial moves you are making during the crisis that we have not covered that you would like to share?