Published in Bloomberg Tax, Tax Management Memorandum on April 20, 2020
With executive orders in several states requiring all but essential employees to stay home, how can estate planners balance the health and safety of the public with providing, what to some are essential services, the same care and attention as estate planners typically would provide? In addition, how can practitioners cope with the necessity of physical distancing while allowing clients to have some piece of mind that their documents are in effect?
REASONS FOR PLANNING NOW
Estate planning is essential during these times. Many clients suddenly want — and need — planning. Some clients may only require updates to their basic plans. For others, it may mean more advanced planning techniques are necessary, such as asset preservation. What are some things planners should be thinking about when engaging clients during this time?
Estate planning is that thing that nobody wants to do. It does not necessarily have an immediate effect on the client, which makes it one of those things that are necessary but easy to put on hold. With the pace of the world slowed, many clients have dusted off their estate plans to review whether the still track their wishes. Are the fiduciaries named in the documents still those that the client would want acting if needed?
Are the dispositive provisions of the estate plan still the desired plan? Others are finding they now have time to check items off their “To Do” lists, including creating an estate plan. Still others may actually be thinking a bit more seriously about their own mortality.
Whatever the case may be, this is certainly a good time for clients to consider whether their current health care directives, assuming they have them, are consistent with their wishes. If not, updating these documents should be at the top of priority given the nature of this pandemic. Additionally, if there any adult children in the house, the children should also have health care directives. One thing that this virus has made certain is that no one is immune. Clients should feel confident that if they or any person in their household falls ill, someone is able to communicate with medical professionals. One of the more concerning things is that some hospitals and health systems are considering blanket DNRs for Covid-19 patients, so it might be a good idea to have this discussion with client during this time so that their wishes are established.
In March, the IRS released the applicable federal rates for April 2020 that were among the lowest in years. For clients who have made intrafamily loans, or those that have outstanding promissory notes associated with the sale of assets, the lowered rates provide an excellent opportunity to refinance those existing notes. Clients can combine these historically low rates with the historically high gift and estate tax exemptions to achieve a successful long-term estate tax reduction through the use of planning techniques whose benefits are magnified when interest rates are low, such as GRATs (grantor retained annuity trusts) and sales of assets to trusts.
In addition to the historically low-rates, the stock market and privately-held business values have dropped dramatically. Again, the historically high gift and estate tax exemptions combined with low asset values provide tax planning opportunities for high net worth clients. While the market and asset values most likely will go up, clients who take the opportunity to make gifts now can not only reduce their taxable estate now, but also exclude all the eventual appreciation on the assets from their estate. The estate and gift tax exemptions may sunset on January 1, 2026 (if not sooner), so planning now can have an exponential effect.
Since we are in the midst of a sudden economic downturn, many clients are focusing on asset protection and preservation techniques. Planners have a wide range of strategies that can be implemented in these situations, ranging from the more common planning techniques, such as gifting to spousal lifetime access trusts and the formation of a limited liability company to hold family assets intermixing irrevocable trusts as owners of the entity for added protection, to the less common, such as self-settled asset protection trusts. Each situation is different and there is no one size fits all approach.
THE LOGISTICS OF ESTATE PLANNING IN THE MIDST OF A PANDEMIC
Whatever the reason for the planning and the level of planning the practitioner and client are engaging in, the world we find ourselves in has changed. If this pandemic had happened 15 or 20 years ago, the impact on life, and business, would have been dramatically different (consider what life was actually like during the 1918 Spanish Flu pandemic). For most, estate planners and their clients cannot sit down and meet in person, whether to discuss the planning or to sign and implement the pertinent documents. Fortunately, technology has allowed planners to adapt quickly to the shelter-in-place isolation now in place. Practitioners still talk with their clients on the phone to discuss estate planning, as always. Practitioners can also meet with their clients, virtually. Clients can now even sign their documents in front of witnesses and a notary, virtually.
That said, care must be taken, as there are aspects of in-person meetings that are lost through the phone lines and video conferences, and safeguards must be taken and specific rules followed for virtual document signings.
Brave New (Digital) World: Video Conferencing
Although we have not mastered holographs (yet) or teleportation (like in Star Trek), we do have tools such as Skype for Business, FaceTime, Google Hangouts, and Zoom, that allow video conferences with clients.
The use of video conferencing by estate planning practitioners is no different than the recent increase in telemedicine. Professionals have the ability to provide in-home services to patients and clients — the world really has come almost full circle since 1918!
Video conferencing is new for many people, so there are several challenges, whether technological or psychological. While it might be difficult enough to have a video conference with an existing client, when meeting with potential or new clients via video conference, the difficulty in connecting is increased exponentially. Do not fear — it can be done! Below are some considerations when video conferencing with clients.
Setting the Right Environment
Attorneys know that setting expectations is one of the keys to client success. Video conferences are no different. Aside from the obvious considerations, such as coordinating with the client to make sure that the professional and client both have the same video conferencing application, there are less obvious aspects of the conference the professional should consider in advance.
First impressions are important. That means the practitioner must make sure that whatever video conferencing platform she is using works seamlessly before she can ever have a call with a client. The planner should not attempt to have a video conference with a client having never used the technology. Practice makes perfect — the professional should try a couple practice calls with co-workers, friends, or relatives, getting comfortable using the technology.
Equally as important, the practitioner should take the video conference from an area that has a professional appearance, making sure that the background is free of clutter and anything that someone might find objectionable. The entire call should be free from distractions, and e-mail and text notifications should be silenced so that full attention is focused the client. If family members are in the house, the planner should advise them in advance that a video conference is taking place (consider the widely viewed video of the TV reporter doing a video story from home when the toddler comes walking in the room).
Also, make sure that you are punctual, just as you would be for an in-person meeting. If you are scheduling several back to back video calls or telephone calls, be sure that you are establishing from the outset what the time limitations are. This helps keep everyone on track. Be sure to leave about five minutes or so at the end to wrap up before you need to move onto your next meeting.
Finally, the professional should dress appropriately for the meeting. If the meeting is with a potential client for the first time via video conferencing, the planner will have limited opportunity to make a good first impression — so every detail counts. During social distancing, people are typically not dressing as they would if they were going into this office — but, if the professional is meeting with clients via video conferencing, even his favorite Roots sweatpants probably are not a good look.
One of the more significant challenges in video conferencing is that non-verbal communication is lacking. Non-verbal communication is often something people overlook, not necessarily purposefully but rather because non-verbal communication is so ingrained in us. We learned non-verbal communication as we first learned to speak.
Handshakes are one of the first forms of non-verbal communication we engage in when meeting new people in western culture. In this time of physical distancing, one of the first things to go was the handshake — people have already been encouraged to replace handshakes with fist bumps, elbow bumps, or foot taps. The act of a handshake is an important first step. Over video conferencing, there is no handshake, so the act of handshaking needs to be replaced with greeting of some sort. The professional should make sure non-verbal cues are warm and welcoming.
Another form of non-verbal communication is non-verbal cues. For example, consider the discussion of fiduciaries in a meeting with a married couple. One spouse might name someone that the other might verbally agree to but may exhibit non-verbal cues that signal they are uncomfortable with the decision, such as folding their arms, tapping their foot or kicking the other under the table. Humans naturally tend to pick up on these cues, so in an in-person meeting the planner might follow up with a few questions to explore. On video, however, it may be more difficult to pick up the cues — for example, the planner might see that a client has folded his arms (but, depending on the camera angle, maybe not), but the planner certainly would not be able to see or hear a foot tapping. This just means that the professional must be even more attentive to verbal cues, such as hesitation or inflection.
Remote Witnessing and Notarization
The execution process for estate planning documents is one of the last truly formal processes left in this age. The execution process of wills and powers of attorney has historically required the clients, the planner, witnesses and a notary to all be gathered in the same room. That requirement was tested quickly as soon as the stay-at-home orders began being issued by various states. While the clients might be able to wait to execute the documents, it would certainly give them some relief knowing their affairs are in place. Practitioners, as well as applicable state laws, had to adapt quickly to life during a pandemic and allow for the signing, witnessing, and notarization of the estate planning documents while all the necessary parties are not necessarily in the same location.
Back in 2000, the days of AOL and dial-up, the National Conference of Commissioners on Uniform State Laws proposed the Uniform Electronic Transactions Act, but it did not extend to wills. Finally, in 2019, the Uniform Law Commission adopted the Uniform Electronic Wills Act (Electronic Wills Act), which proposes that a testator’s electronic signature is valid so long as it is witnessed contemporaneously or notarized contemporaneous, pursuant to local law. The Electronic Wills Act also suggested that states allow remote witnessing.
Before the pandemic set in, Nevada’s Electronic Notary Public Authorization Act, which became effective December 14, 2018, and Florida’s Electronic Legal Documents Act, which timely became effective January 1, 2020, allowed notaries to perform virtual notarizations. In response to the pandemic, several other states have joined either through new acts or executive orders. While a discussion of each state’s specific laws is beyond the scope of this article, and to be sure each state has different requirements (note: witnessing remotely is also up to each State — with the common thought that witnesses must clearly witness the signing of the documents), it is clear that the Covid-19 pandemic has pushed forward the use of virtual notarizations and signings. States that have not yet adopted virtual notarizations will likely soon join the ranks of the states that have.
While every state will have different requirements, there are some best practices when administering a virtual execution. The very first thing a practitioner should do is establish expectations for the clients. When initially planning for the execution video conference, the planner should explain the entire process, share all of the necessary steps that will be involved and about how long the execution should take. In addition, in advance of the video conference, the planner should send the clients electronic versions of the documents and make sure the clients are able to print them sufficiently.
When the video conference document execution is initiated, the first thing that planner should do is again explain the entire process to the clients now with the witnesses and notary on the conference. One aspect of the process is the recording of the meeting.
The Uniform Electronic Wills Act and most states require some form of recording, which must be kept for the time period prescribed. Once recording begins, the attorney leading the virtual signing should state the date, who all the parties are, and what will be signed. Immediately after the introduction, the attorney should obtain permission to continue the recording from the clients and from any witnesses or notaries present.
When signing documents in person, one concern that practitioners have is that the clients are not under any duress or influence from another person to sign the documents. This concern is magnified in virtual signings because practitioners cannot see if anyone else is present. It is good practice for the practitioner to ask the clients if any other persons are present and for the clients to show the room they are in. The practitioner should also remain attentive to any other noises and note if other individuals enter the room.
Practitioners can then continue on with the signing as they normally would with an in-person meeting, but for one caveat: the act of initialing pages and signing must be captured on video. The practitioner may need to ask clients to move the camera, even if briefly during the actual act of signing. Signed documents are then circulated electronically, with the witnesses and notary printing, signing, notarizing, and recirculating the documents.
While the video conference execution conference will typically take longer than an in-person signing, it certainly is a comfort to both clients and practitioners that the estate planning process can continue, and be concluded, even in the midst of stay-at-home orders.
The end of the pandemic, at this point, is uncertain; however, the changes it has brought in daily life are noticeable, and may not end as quickly, if at all. The estate planning professional’s role is to adapt to the environment to be able to service their clients. The current environment may be the new normal, at least for some time to come. Addressing the specific needs of clients come first. To do this while facing stay-at-home orders requires practitioners to utilize modern technology such as video conferencing to get the job done. Even after stay-at-home orders have been lifted, clients may feel uneasy about meeting at offices, so virtual meetings may also continue even longer. Likewise, as people get comfortable with the technology, busy schedules may dictate that virtual client meetings grow more common place. The same holds true for remote notarization and witnessing. As the estate planning bars and lobbying groups grow more accustomed to remote notarization and witnessing, what are current executive orders in many states may evolve into permanent law. The world is changing as a result of the pandemic, and the estate planner’s job has as well.
Reproduced with permission from Copyright 2020 The Bureau of National Affairs, Inc. (800-472-1033) www.bloombergindustry.com.
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