Deathbed Planning for the Two Weeks Prior to Death
“Deathbed Planning for the Two Weeks Prior to Death,” that’s the subject of today’s ACTEC Trust and Estate Talk.
This is Travis Hayes, ACTEC Fellow from Naples, Florida. This podcast will center on a scenario that none of us desire to confront, yet one for which we must adequately be prepared. The moment when you receive news that a long-time client has just a few weeks left to live. Guest Ellis Pretlow of Norfolk, Virginia will delve into both the prospects for planning and the potential traps that could arise in the final two weeks of a client’s life. Welcome, Ellis.
Ellis Pretlow: Thanks so much. So, like Travis said, I’m going to be talking about the two weeks immediately prior to a client’s death. And I think a lot of us have gotten that kind of call from a family member saying, what should we do right now? What can we do? What should we be thinking about? And really, this podcast could be a treatise on all of estate planning, right?
You should be running through all these thoughts in your mind. What are the things that are outstanding? What possible things could we take advantage of? What might we not want to do? But I want to touch on five thought processes that I think are important during this time. Some may seem a bit obvious, but I always think they’re worth talking about.
Information Gathering: Preparing for Death
The first is information gathering. You need to start preparing for this long before this two weeks prior to death. In preparing for this presentation I’ve been talking to a lot of colleagues about the importance of preparing summaries of trust estate planning documents, entities, and any related documents actually in the moment when you’re doing them. So you can imagine a scenario where a family member calls you and says, my family member is about to pass away. Should I exercise that swap power in the IDGT (Intentionally Defective Grantor Trust) that holds the promissory note? And you think, what IDGT? What promissory note? That was 13 years ago.
So having all that information kind of at your fingertips, being ready to say, yes, here’s the power that you have, here’s what we should do, here’s the basis of the assets in this trust, and having all of that in a file kind of ready to exercise and think about is going to be really important during this time period. That also reflects on the importance of the information flow in law firms and also with the client’s other professional advisors.
So, thinking about the tax attorney, the estate planning attorney, and the corporate attorney, all working together because they do know discrete pieces of information. Or maybe a partner in a law firm who drafted that IDGT has retired, trying to get that information from them later on is going to be much more difficult than if you had these kinds of executive summaries to begin with.
Asset and Liability Sheet & Passwords
Obviously, an asset and liability sheet with types of titling, you know, getting all of that information now so that you’re prepared for the two weeks after death. Finally, in the world now, thinking about digital access, passwords, cryptocurrency wallets, anything that the decedent has exclusive access to that’s going to be much more difficult for a fiduciary to get after death. And the one thing here I recently have had a personal experience with is passwords to iPhones.
So, thinking about digital devices. Even if your client has every single online account and password written on a sheet in front of them, if they have dual-factor authentication with their phone, which most bank accounts do now, anything like that, if you can’t get into their phone, there’s very little you can actually access. So just trying to gather all of that while it’s still a little bit easier prior to someone’s death.
Probate Avoidance: Uncovering Hidden Assets
The second thing to think about is general probate avoidance. And that’s something that is probably the first thing that goes through every estate planning attorney’s mind. But really thinking about some of those sneaky assets that might not come to mind right away. Promissory notes, entity interest, accrued but unpaid interest from a trust- QTIPs are a big one in that case. And also any retirement home refunds that may be coming back into a client’s estate. The more of those you can get out of the estate, the better off you can be. And those are sometimes some of those assets that are left till the very last minute. You end up after death having to have a probate just because of those kinds of sneaky assets that you weren’t thinking about on a true asset and liability spreadsheet.
Out-of-State and Out-of-Country Assets Tax Considerations
The third thing is thinking about out-of-state or out-of-country assets. Obviously, you want to try to avoid any type of ancillary probate or conflict of law issues that may arise in other states. To the extent you can avoid them in these last two weeks of life, it’s a good time to address them.
In a similar vein, thinking about state tax considerations. Thinking about the residency of a successor trustee for fiduciary income tax purposes, while there’s still a chance to change those provisions or for the successor to proactively decline to serve, which could prevent state tax on a trust that would otherwise be subject to state tax after the death of the decedent.
Moving Assets into an LLC
Think about if there’s an ability to put real estate into an LLC to avoid a state estate tax or inheritance tax. Some states do not tax gifts, but they do tax estates or inheritances. So, consider whether an inter vivos transfer would be better than a testamentary transfer in order to avoid that state estate tax.
I actually had a colleague tell me about a really interesting planning move that I would not have thought about, which is they had a Virginia-domiciled decedent and they were pretty sure she was going to die in the very near future. So, within the two weeks prior to her death, they took $100 million of tangible personal property out of her apartment in New York, put it in a moving truck, and took it all down to Virginia where she was domiciled. I’m not giving a legal opinion that takes that $100 million of tangible personal property out of the New York state estate tax. But it is the type of thing you should be thinking about in this tight timeframe of active things that you can do that can make a big difference.
The fourth thing I want to talk about is basis planning. And this is something that is another thing I think most estate planning attorneys are thinking about during this time period, but thinking about the big exemptions now, is there a big family trust that’s sitting out there that really, we’re not worried about the decedent being subject to a state tax. So we could distribute everything out of that trust or terminate that trust in order to get a basis step up on the decedent’s death. Or, is there a grantor trust that exists with a swap power? Could we swap high-basis assets for low-basis assets and get those into the decedent’s estate?
General Transfer Tax Planning
The final thing I want to touch on is just general transfer tax planning. I’m not talking about anything complex here. Unlikely that within two weeks, you could do anything too complex, so we’re thinking about simple gifting techniques.
Annual Exclusion Gifting
Like I tell my clients, give everybody you know $17,000. Take advantage of that annual exclusion. However, you do have to be careful with how the annual exclusion is used within this deathbed timeframe. There’s been a recent tax court memorandum case, Demuth, memorandum 2022-72 about when a check is actually effective and when the gift is complete prior to someone’s death. Cash is always complete when you deliver it into someone’s hands. Think about using cashier’s checks, Zelle, Venmo, or any of these kinds of automatic immediate transfers in order to try to get those email exclusion gifts completed before someone passes away.
The other thing is to think about direct payment of tuition or medical expenses for family members or friends during this time. Pre-pay a child or grandchild’s private school or college tuition. That’s always a good way to get some additional assets out in this time period that will not be subject to a state tax.
So those are just five very basic kinds of things to put in perspective during this time period. Some of them are fairly obvious. Some can have unintended consequences, so you always want to think about that too. Not to do anything in this last-minute period of time that’s going to in any way substantively affect an estate plan that may throw something off that otherwise was going to work before you did it. So don’t rush to do anything, but just kind of tick through your mind a couple of points on a checklist about something that you could do that could greatly help your client or something that you should pose to the family as a possibility for an easier state administration after the decedent has passed away.
Travis Hayes: Thank you, Alice, for discussing deathbed planning for the two weeks prior to a client’s death. We will continue this discussion in our next podcast, which will discuss considerations for the two weeks following the death of a client.
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