For the reader’s convenience, I have split this article into two main sections: the first is planning opportunities for everyone. The second section, farther down, is for people with net worth in excess of the estate tax exemption amounts, discussed more thoroughly in this blog post. In the Hudson Valley, there are some people fortunate to be in this realm, usually owners of closely-held businesses.

Planning Opportunities for Everyone

Opportunity #1: Recognition of the need for planning. The first step to creating a better plan is: realizing that you need one. It sounds obvious, and simple, but failure to realize this is what carries emotionally and financially draining consequences for many people’s families.

While unpleasant, times like this serve as a reminder that life can be uncertain. For some people, such as people that work in the restaurant and hospitality industry, that may mean a loss of primary income. For others, such as teachers, that may mean adapting to a new way of doing your job, but thankfully does not mean a loss of income (or at least all of it–many teachers are suffering loss of supplemental income from after-school activities or 2nd jobs). For health care professionals and first responders, it means kicking into high gear and working even more.

A recent CNBC article reports that there has been a surge in online wills since the virus has been active in the United States. So, people are recognizing that they should be doing planning, albeit unfortunate that they are turning to a gloried questionnaire rather than an experienced, qualified estate planning attorney. Now is good time to think about what you want done, and who you want to help you do it.

Opportunity #2: Finding the right firm. Many people have difficulty knowing where to start to find the right professionals to help with their planning.

It is now fairly easy to identify which professionals are truly set up to assist you in the most convenient, effective, and focused manner. An estate plan is not just a one-off event. There should be follow-up, and occasional maintenance over the years. Most people are too busy to commit to the stodgy formalities of in-office meetings. Many people are mostly operating online with email, rather than physical “snail” mail. Would you like to rely only on the physical copies of your documents you get, or having to contact your lawyer to wait to send you copies that are retained by the office? Or would you rather have 24/7 access to your file through a secure online portal?

The onset of COVID-19-related business restrictions saw many law firms scrambling to figure out how to operate without an office. Others, such as our firm, have been established to operate remotely and accommodate clients in any situation from day one. You should always investigate the experience of the attorney assisting you, but also important is an attorney’s commitment to client service and convenience.

Opportunity #3: Lowered setup costs. Everyone is concerned about what setting up a proper plan will cost.

Here’s a big secret: law firms are not exempt from the economic hardship of the COVID-19 pandemic. Those same firms that were scrambling to figure out how to operate without an office usually carry a fairly high degree of overhead. Any business owner–which includes the partners at a law firm–should be recognizing the need to drive revenue to keep the business afloat, make payroll, etc. Some may be dealing with it more strategically than others, but that gives the prospective client a bit more leverage. While some firms do not or would not negotiate their fee, others may be more willing to at this time. While the driving force behind your choice of professional should be their experience and specialty in the estate planning area, as long those remain true, it may be the case that you can get your planning done for a lower cost than you otherwise would. It is simple economics of supply v. demand.

Here at DuBois Law Group, we have chosen to provide a discount on costs based on a principle near and dear to our hearts. Now, more than ever, our nursing and law enforcement professionals are doing incredible work to help our nation through the COVID-19 pandemic. For that reason, we are offering a 50% reduction in consultation fees, and a 20% reduction in our estate planning fees, to nurses and police. A more formal announcement will come out in the coming days, but this offer is effective now, and there is no end date. All meetings can be done via phone or videoconference.

Planning Opportunities for People with Taxable Estates ($5+ million)

The Estate Freeze. One of the most common and effective ways to reduce potential estate taxes is to remove assets from your estate. This typically involves transferring those assets to specially-drafted trusts that benefit your spouse, children, grandchildren and/or other heirs. The first example shows this strategy in its simplest form, and the second example shows how, in times of economic downturn, we are given an opportunity to very significantly amplify the effect of the strategy.

The critical concepts here is the annual gift tax exclusion. The Federal government defines any transfer of assets valued in excess of $15,000 per person, per year, as a “gift” that is then subject to Federal gift tax. Therefore, transfers up to $15,000, per person, per year, are not considered “gifts” and therefore are excluded from any consideration or applicable tax. If a person has a net worth such that we expect his or her taxable estate to approach the estate tax exemption limit, we can, each year, transfer assets valued at $15,000, multiplied by the number of people to whom we are transferring those assets. If we are using a trust (as we should), the exclusion applies to the number of beneficiaries within the trust.

Example #1. Jane Doe is worth $6,000,000 from various business and personal holdings. She has four children, each of whom she wants to benefit from her estate. Because she is over the New York State Estate Tax exemption for 2020 ($5,850,000), her estate is likely to be liable to pay tax. To avoid this, in consultation with her estate planning attorney, CPA and financial advisor, she implements a plan where she drafts a specific type of trust, and transfers $60,000 worth of her assets (4 x $15,000) per year into the trust. This reduces her estate by $60,000 per year. Also, since the $60,000 per year of assets will likely grow in value, now that growth will happen outside of her taxable estate. Upon her death, whatever is in the trust for her children passes to her children with no estate tax.

For this strategy to be really impactful, it is best to transfer assets that are, for some reason, very low in value. Then, once they are outside of your estate, they can grow without increasing your taxable estate. This is where the economic downturn creates a significant opportunity for owners of many businesses.

Example #2. Jane Doe is a business owner, and much of her net worth is attributable to her businesses. In January of 2020, she was worth $6,000,000. However, due to the COVID-19 business restrictions, she has had to suspend operations, put contracts on hold, lay off portions of her workforce–the list of unfortunate realities goes on. Therefore, now in April of 2020, her business interests are worth substantially less. In consultation with her estate planning attorney, CPA, financial advisor and certified business valuation professional, she implements a plan where she drafts a specific type of trust, and transfers $60,000 worth of her business assets into the trust. This removes significantly more of those business interests than it would have earlier this year. Later in 2020, the COVID-19 crisis is mitigated, her operations resume, she re-hires much of her workforce, and while it was a rough road, after a couple years her businesses are back to their former value, and growing. But, much of that business value is now outside of her estate and not subject to estate tax.

In a difficult time, when our circumstances seem out of control, there are still certain things that we can control. Namely, our mindsets and our actions. In addition to acting safely and weathering this storm together, we can also find, and act upon, the opportunities the situation may uncover.