4-8-20 Estate Planning During the COVID-19 Crisis - Part I of 2

Posted on April 08, 2020


Part 1 of 2

This 2-part series will focus on Estate Planning during this time of crisis. Part 1 will highlight the practical considerations in updating your plan, while introducing the concept of gifting in this financial environment. Part 2 will delve into specific strategies and considerations for estate and gift tax planning purposes.

The rapid onset and spread of the COVID-19 pandemic throughout the world has reinforced the importance of having an up-to-date and comprehensive estate plan. This is an unfortunate, yet sobering, reality. It is vital to ensure that you have designated a durable Power of Attorney and a Living Will/Health Care Proxy to assist with your financial and health care matters, respectively, during your lifetime. In addition, for those individuals who want Do Not Resuscitate or Do Not Intubate (DNR or DNI) orders in place, there could be no more important time to put such a document in place as the need for ventilators rises. This should be done in concert with reviewing and updating your Last Will and Testament ("Will"), including Trust planning where applicable; a Will states your wishes regarding how assets pass upon your death.

The current social distancing mandate presents a challenge in updating your estate plan. In New York, like most states, the major impediment is that most estate planning documents must be signed in the presence of two independent witnesses. Thankfully, on April 7, 2020, by Executive Order of the Governor, New York will now temporarily permit these witnesses to be present via video conferencing, rather than the traditional legal mandate of physical presence. While in-person meetings are not required for the time being, there is a very specific procedure that must be adhered to in order to ensure valid electronic witnessing.

  • The person requesting that their signature be witnessed, if not personally known to the witness(es), must present valid photo ID to the witness(es) during the video conference, not merely transmit it prior to or after;
  • The video conference must allow for direct interaction between the person and the witness(es), and the supervising attorney, if applicable (e.g. no pre-recorded videos of the person signing);
  • The witnesses must receive a legible copy of the signature page(s), which may be transmitted via fax or electronic means, on the same date that the pages are signed by the person;
  • The witness(es) may sign the transmitted copy of the signature page(s) and transmit the same back to the person; and
  • The witness(es) may repeat the witnessing of the original signature page(s) as of the date of execution provided the witness(es) receive such original signature pages together with the electronically witnessed copies within thirty days after the date of execution.

Although physical presence is not required, the "independent witnesses" requirement remains. This generally means that those individuals closest to you, both physically and emotionally during this social distancing crisis, are not able to serve as witnesses to your signing of the document. This is because those individuals are often named as Agents or beneficiaries in the documents themselves. If a beneficiary serves as a witness to your Will, that invalidates his or her inheritance in most cases.

This Executive Order is effective through May 7, 2020, and it applies to Last Wills and Testaments, durable Powers of Attorney, Living Wills/Health Care Proxies, and other related estate documents under certain circumstances. The Governor's previous Executive Order authorizing notaries to notarize documents via video conferencing has also been extended to May 7, 2020. This notary process requires that you must affirmatively represent to the notary that you are physically situated in New York during the video conferencing.

For estate tax planning purposes, the appeal of gifting and Trust planning often increases during times of crisis. COVID-19 has resulted in an extraordinarily low interest rate environment. This presents an opportunity to transfer wealth to the next generation in a tax-efficient way.

The current Federal estate and gift tax exemption is $11,580,000 per person ($23,160,000 combined for a married couple). Historically, that is very high, as it allows you to pass a great deal of wealth gift/estate tax-free to the next generation. This threshold, however, will not last forever. The law is scheduled to sunset at the end of 2025, reducing the estate and gift tax exemption back to approximately $6,000,000 indexed for inflation, but this may change sooner than 2025 depending on the November elections. In an uncertain financial environment, it is possible, if not likely, that the government will reexamine this sooner rather than later. Therefore, if you are considering gifting as part of an estate planning update, it is important to be proactive while the exemption remains high.

New York's estate tax exemption is currently $5,850,000. New York does not have a gift tax, but gifts made within three years of death are brought back into the fray when calculating estate tax on death.

Finally, the recently enacted SECURE Act changed income taxation of retirement accounts drastically and to the detriment of inheriting beneficiaries. Any individual with an estate consisting of retirement accounts should consider a review of the estate plan to ensure the best available income tax treatment for these accounts.

To read part 2 of this alert click here: Part 2

Please contact your Woods Oviatt Gilman attorney for more information about updating your estate plan.