A Guide To Estate Planning During The Coronavirus Pandemic
The coronavirus pandemic undoubtedly has you on edge. We’ve all been forced to face our fears in some way, whether it’s the fear of falling ill, losing a job or having to spend time alone. With all these anxieties and unknowns weighing on your mind, it might feel like there’s suddenly a pressing need to get your affairs in order ― just in case.
Though most people who contract COVID-19 experience mild symptoms, it doesn’t hurt to be prepared if you do need to be hospitalized. It can feel scary thinking about getting sick or not being able to make decisions for yourself, but an estate plan is meant to ease your fears. After all, wouldn’t you feel better knowing that the burden of making health and financial decisions will never fall on unprepared family members?
The truth is that just about everyone should have an estate plan, even if there is no looming health threat. So if you don’t have one, there’s no better time than now to put it together.
Documents Needed For An Estate Plan
Anyone over the age of 18 requires some level of estate planning, according to Eido Walny, founder of Walny Legal Group, LLC, an estate planning and asset protection law firm based in Milwaukee. And you might be surprised to know that wills and trusts aren’t always the most important documents to focus on first, especially if you’re single with no kids and limited wealth.
You need someone who can do your banking or make your medical decisions if you are quarantined in your home, admitted to the hospital or become incapacitated.
“Estate planning is more than just getting a will,” Walny said. A strong estate plan will also include several other important documents, such as a revocable trust (sometimes called a living trust), financial powers of attorney, health care powers of attorney, and more. “All of these documents are important and serve a role in the overall planning,” Walny said.
In light of the current situation, the two most important documents to have on hand are medical and financial powers of attorney, said Patrick Simakso, an elder law attorney and wealth preservation specialist at Simasko Law in Mount Clemens, Michigan. “You need someone who can do your banking or make your medical decisions if you are quarantined in your home, admitted to the hospital or become incapacitated,” he said.
Once you have those in place, it’s a good idea to work on putting together a comprehensive estate plan. Here’s a look at all the documents you should have and what they mean.
1. Financial Power of Attorney
A financial power of attorney document is a legal document that gives an agent the authority to carry on a person’s financial affairs and protect their property by acting on their behalf, according to David Bross, an Ohio-based attorney and certified specialist in estate planning, trust administration and probate, which is the legal process that unfolds when someone is incapacitated or dies. The FPOA gives the agent the ability to pay bills, write checks, make deposits, sell or purchase assets or sign any tax returns.
“Any competent adult can serve as your agent,” said Somita Basu, an estate planning and probate attorney based in the San Francisco Bay area. However, it should also be someone you trust to be honest, use common sense and be dependable. “Choose someone who is relatively nearby to manage the practical aspects of helping you with your finances,” she said. You should also choose a back-up agent in case your primary agent is unavailable.
Bross added that without an FPOA, there is no person with the ability to act on your behalf. “Family members will be required to request the probate court appoint a guardian to have these powers,” he said. “The court process can be time-consuming and expensive.”
2. Health Care Power of Attorney
Similar to a financial power of attorney, Bross explained that a health care power of attorney is a legal document that gives an agent the authority to make health care decisions on your behalf if you are incompetent or incapacitated. If you’re over the age of 18 and don’t have an HCPOA, your family members will have to request that the probate court appoint a guardian to have these powers.
3. Living Will (Advance Health Care Directive)
A living will ― also known as an advance health care directive ― allows you to specify what end-of-life treatment you do or don’t want to receive if you become terminally ill or permanently unconscious and won’t survive without the administration of life support, according to Bross.
“Without a living will, the decision to remove life support is left in the hands of your health care agent or family members,” Bross said. “This can be a very emotional decision for family members ― by creating a living will, you set forth your wishes and take that decision out of your family member’s hands.”
4. HIPAA Waiver
While your advance health care directive will likely contain language that allows your agents to access your medical records, Basu said it’s not uncommon for medical facilities to refuse access to medical information without a stand-alone HIPAA waiver. “As a back-up document, make sure you have a stand-alone HIPAA waiver to allow your nominated agents and family members to have access to your medical information so they can speak freely with your health care providers in case of a medical emergency or your incapacity,” she said.
5. Last Will And Testament
A last will and testament is a legal document that allows you to direct distribution of your property at the time of your death, Bross said. A will also allows you to appoint an executor, who oversees the distribution of your assets.
“Everyone has assets that must transfer after a person’s death,” he explained. “Without a will, there is no direction as to how those assets will pass.” If you don’t have a will in place, distribution of your assets will be handled by the state and the court will decide on the best person to oversee the administration of your estate.
A will also allows you to appoint a guardian to take care of minor children. Again, if you don’t have a will, a court will decide who is the best person to fulfill that role. “This limits a parent’s ability to have any say in the process,” Bross said.
6. Living Trust
Essentially, a revocable living trust is a legal contract that you make with yourself to create an entity to hold your assets, Basu explained. You can change your trust at any time (which is why it’s called “revocable”), and you can set it up to outlive you.
“If you become incapacitated or are unable to manage your estate, your living trust avoids the need for a court appointed conservatorship,” Basu said. You’ll appoint a successor trustee who steps in and manages your affairs without the involvement of the court, avoiding the extra time and money associated with probate. A trust also affords you privacy surrounding the details of your estate, since it avoids the need for probate, which is a public process.
Finally, Basu said that a living trust can help provide for the care, support and education of your children by turning over trust assets to them at an age chosen by you. For example, you could advise that your children receive their inheritance in graduated stages, like one-third of the principal at age 21, one-third at age 25 and one-third at age 30. “A living trust can leave your assets to your children in a manner that will reduce the ability of their creditors or ex-spouses to take your children’s inheritance from them,” Basu said.
Since a good estate plan can save a lot of money, it is not a ripe area to pay as little as possible because mistakes can be costly.
Is It Possible To Create A Will, Trust, Etc., Without A Lawyer?
Though there are several websites that make it possible to draft these documents for a low cost, it’s important to keep in mind that estate planning can be complex and it pays to have a professional review your plan. Aside from preparing documents and looking out for loose ends that need to be considered, a good estate planner will help with proper titling of assets such as real estate and vehicles, as well as designating beneficiaries for life insurance, retirement accounts and bank accounts.
“Since a good estate plan can save a lot of money, it is not a ripe area to pay as little as possible because mistakes can be costly,” Walny said.
If you aren’t sure where to find legal help, you can try searching the National Association of Estate Planners and Councils. Look for attorneys who have the estate planning law specialist (EPLS) designation, which means they’ve been highly vetted by the NAEPC. An accredited estate planner (AEP) designation is also helpful.
Of course, considering the staggering unemployment numbers we’re facing during the coronavirus pandemic, you may not have the money to hire a lawyer right now (it typically costs $1,000 to $2,000 to create an estate plan). That doesn’t mean you’re totally out of luck. Sites such as LegalZoom and Nolo can help you get basic documents in place for under $100 each. However, you should consider having a lawyer look at these items more closely down the road, especially if you have a large estate or are concerned someone might try to contest your will.
Another issue to keep in mind is that documents such as wills and powers of attorney have to be witnessed and notarized in order to be binding. The problem? During a pandemic, “it’s actually dangerous to one’s health to gather the necessary notary public and witnesses for the in-person execution of the documents,” said Ray Koenig III, an attorney and member of the litigation and tax and estate planning groups at law firm Clark Hill. In fact, many notary and attorney offices are closed due to shutdown orders.
Fortunately, many states such as Illinois and New York have recently enacted executive orders or statutes which allow for virtual notarization and witnessing of these documents. “That means that clients do not need to make a risky trek to their attorney’s office. Instead, with trained and skilled staff, an attorney can coordinate everything virtually,” Koenig said.
How To Organize And Store Your Documents
Once you have all your estate plan documents finalized, you need to be sure they’re kept safe but accessible to the right people.
Give the originals to your lawyer. Bross said he recommends allowing your attorney to store original estate planning documents to ensure proper safekeeping. Typically, attorneys store these documents in fireproof safes in locked rooms. “If any of the originals are needed, the distributed copies usually have a stamp that alerts everyone where the originals are stored,” he said.
Provide copies to the appropriate people. You should give copies of relevant documents to your financial adviser, treating physician, successor agents and any family members you want aware of your plans. Additionally, Bross said you should be sure anyone named in your documents to act on your behalf is aware. “Provide them with an explanation of the role they may play so they can be prepared,” he said.
Keep high-quality scanned copies. In addition to making physical copies of your legal documents, you should also have digital files saved. In fact, you should do this for all important financial and legal paperwork, including anything related to homeownership, custody, estate planning, guardianship and child support. “A high-quality scan will make printing and copying these documents much easier,” Basu said.
Label all your documents clearly. Don’t save your documents as “scan1,” “scan2,” and so on, as that will make organizing and finding them a nightmare. “Make sure everything is labeled accurately and includes dates the document was finalized or signed,” Basu said.
Save a list of your digital accounts and passwords. Along with estate planning documents, everyone should maintain a list of their digital assets and how to access them, said Katie Von Kohorn, a partner at Casner & Edwards who specializes in trusts and estates.
“In particular, if you access your financial accounts online ... it is vital that your loved ones know where these accounts are held,” she said. In addition, you should keep a list of your wishes regarding your other digital assets such as email, social media accounts, photographs in cloud storage, virtual currencies, credit card rewards, etc. Make sure that you share the passwords to these online accounts with someone so your family is able to retrieve and secure them should anything happen to you.
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Getting a big refund in April
Ideally, you should have just enough withheld from your paychecks to break even at the end of the year.
Claiming the wrong filing status
If you’re single with no kids, choosing the right filing status might seem obvious. But married couples, single parents and caretakers might have a tougher time choosing the right one.
For example, McInnis said most married couples choose “married filing jointly,” even though there are many situations when this isn’t the optimal choice. “Say you or your spouse have a large amount of out-of-pocket medical expenses and one spouse has a much higher gross income than the other spouse. Because you aren’t able to deduct medical expenses until they exceed 10% of gross income, it may be better to file separately so that the spouse with the lower income can deduct the medical expenses on their own return,” he said.
There are countless other examples, too. For instance, single parents who have a qualifying dependent and pay for more than half the total cost of running the household may qualify to file as “head of household,” which increases the standard deduction. You can also be considered unmarried if your spouse didn’t live with you for the last six months of the year.
Missing tax deadlines
It’s always a good idea to give yourself more time than you think you’ll need to file, just in case any last-minute issues come up. And if you send your return by mail, Scheer recommends sending your documents by certified mail with registered receipt requested.If you are a freelancer, contract worker or business owner, you especially need to pay attention to important tax deadlines throughout the year. “By far, the most common mistake I see is people failing to make estimated income tax payments and then getting assessed the failure to pay and sometimes even failure to file penalties by both the IRS and their state taxing authority,” said George Birrell, a certified public accountant and founder of Taxhub.
The good news is this penalty is waived for certain taxpayers: those who owe less than $1,000 in taxes after subtracting their withholdings and credits, or those who paid at least 90% of the tax owed for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
Not claiming all your income
“Every statement of income you get in the mail at tax time also gets sent to the IRS,” explained Andy Panko, an enrolled agent and owner and financial planner at Tenon Financial LLC. “Whether you intentionally or mistakenly leave off one of the items of income, the IRS will pretty easily catch it and eventually request it from you.”
Depending on the amount of the missing income and the length of time it takes for the IRS to catch it, you could owe a sizeable amount in underpayment penalties, late payment penalties and interest, Panko said. Sure, there’s a chance you’re never caught, but it that’s a potentially expensive risk to take.
Missing out on valuable deductions and credits
A few commonly missed deductions, according to Panko, include those for medical expenses, teachers’ classroom supplies, business use of your home and property damage caused by federally-declared disasters. Common credits that get missed are child and dependent care credits, credits for higher education expenses and the earned income credit for those with incomes below a certain level.
“The U.S. tax code is incredibly convoluted, and therefore, it’s difficult to know what you don’t know. As such, it’s generally a good idea to either do your taxes using professional software or have them done by a credentialed tax return preparer,” Panko said.
Relying on outdated write-offs
For example, entertainment expenses are no longer deductible at all, though meals during entertainment events are still tax deductible. “But if you’re planning to take out clients to an impressive dinner, weigh out the tax implications first ... there’s now only a 50% deduction available, and this is only if the self-employed individual is present during that time and that impressive dinner isn’t too extravagant,” Hammell said.
Misunderstanding how an extension works
“If you file for an extension, you are supposed to send payment for what you may possibly owe,” said Daniel Slagle, a certified financial planner who co-owns Fyooz Financial Planning with his wife. “If you don’t, you may owe additional penalties and interest.” So be sure to have that cash handy come April 15, even if you don’t officially file until October.
This article originally appeared on HuffPost.
