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Update Your Estate Plan Now!

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By: Mark C. Doyle, Esq.

TLD Law’s estate planning department has been very busy as the COVID-19 crisis has spurred many people to update or complete their estate plans.  For many, updating their estate plan has been a loose end, which the pandemic has given the time and sense of urgency to address. But both the health and economic crisis has exposed a variety of potential flaws in your estate plan that you may not have considered previously.

Estate Taxes Are Going Up

The economic cost of the pandemic has created historic national and state budget deficits, with the federal estate tax exemption already scheduled to drop from 11.58 million to 6 million in 4 years, a change in administration will most likely accelerate the lowering of the exemption which will result in estate taxes being assessed on estates over 6 million as soon as next year.   Bottom line is you need to consider these changes in your estate and gift planning by revising your trust, gifting this year and taking advantage of the charitable deductions still available.

Common Trust Language that May Need Rethinking

Most trust documents include commonly used language that you may need to reconsider under today’s circumstances:

Mental Capacity Must Be Determined by Two Licensed Physicians

Many estate plans require two licensed physicians to certify a patient’s lack of capacity. Even in normal times, there often aren’t two physicians actively involved in a person’s care, much less comfortable certifying that a person is incapable. In addition, when mental capacity becomes an issue, the provisions often make physician certification the priority, rather than the care of the person in need or the transactions that need to be handled by their agent or successor trustee.

The COVID-19 crisis has exacerbated these concerns. Non-essential medical visits have been limited, especially for older patients. In addition, physician’s attention may be needed elsewhere. Provisions requiring two-physician certification have their place where there are real concerns about retaining control vis-à-vis an agent or successor trustee. But in most cases, those agents and successor trustees are the people or institutions you most trust.

It can save valuable time and energy to replace the physician certification provisions in your trust document with a simpler, more flexible process.

“Springing” Powers of Attorney

Another option to simplify concern around incapacity is to avoid “springing” powers of attorney. These powers of attorney give your agent authority to make decisions for you. But they are only effective—or “spring” into effect—when your physician deems you incapable.

During the pandemic, we’ve seen that being incapable can take multiple forms—from being in quarantine to being intubated to being stranded abroad or unable to travel to where you need to be. For third parties who need to rely on the power of attorney, the “springing” power of attorney creates a hurdle to determine whether the appropriate standard of incapacity has been met.

Assuming you trust the person you have named as your agent, the better approach can be to give them the authority to act independently and not wait for their authority to be triggered by your incapacity.

Dead-End Succession Provisions

It’s important to have your agents and successor trustees named in your trust document and ready to act. Often, an estate plan will name one or two successors but will lack any further back-up (or process to name a back-up) if those initial people are unable to act.

The pandemic has shown us that it’s possible for whole families to be impacted at once. It’s also possible for unique conditions to arise, making it difficult or impossible for family members or others to act.

For those circumstances, having a trustee of last resort, which is often a corporate trustee such as Fiduciary Trust, is crucial.  In addition, it is always best practice to include provisions to fill a vacancy and for replacing a corporate trustee if necessary. Such provisions can be the difference between a simple transition and a court proceeding lasting many months.

Too Much or too Little Detail in Your Health Care Directives

People have always given various level of attention to their health care directives. Some name an agent to make health care decisions for them and leave it at that. Others leave specific, detailed instructions around end-of-life decisions, pain alleviation, organ donation and various forms of treatment. Neither extreme is ideal.

In the pandemic, we have seen health care concerns morph, with intubation and ventilators playing roles not imagined before. For individuals with overly detailed health care directives, their guidance could end up restricting the treatment or, at minimum, confusing their agent’s decisions.

At the same time, those agents without enough guidance may struggle with making hard decisions. “Just-right” is in the middle with general guidance on end-of-life decisions and the concerns that matter most to you, but not detailed specifics that are impossible to anticipate.

Specific Bequest Amounts

Very few people anticipate that they may die at the same time as a major market correction. If anything, we tend to assume that the value of our assets will be greater when we die. If your estate plan involves bequests of specific dollar amounts, this is a crucial concern.

When the market declined in March, many rushed to their attorneys to update their estate plan knowing that the drop in values could impact their estate plan in ways they didn’t intend. For example, let’s say your estate is $25 million, and your goal is to leave $15 million to your children. You may think you’re fine if you provide for $10 million to be left to friends and charities, with the “balance” left to your children.

But if your assets drop 25% in value, the amount to your children would be far less than you intended. If the children are your priority, you may want to leave them a bequest that gets paid before the others, or you may want to decrease the other bequests to ensure the residue safely remains in the range you desire.

Providing for Your Communities

TLD Law has and remains committed to supporting our communities our partners this year include Olive Crest.The pandemic has made clear the needs in our communities are immense. This has led to a shift in financial goals for some individuals, both currently and for the legacies they leave behind.  Large bequests can provide the backbone for a charity to survive turmoil and demand like we’ve seen over the past several months. And every cent matters when helping those in need. Considering what is playing out across the US and the world, you may decide to increase the focus of your legacy on charitable impact.

Now is the time to call or email us for an appointment to review your estate plan.  We can arrange a meeting via video, telephone or at our Orange County or Los Angeles Offices.  We look forward to assisting you in this important work.

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