Setting up a living trust could be beneficial during COVID-19, but it should not fully replace a will or other estate planning documents, experts say.
Estate planning professionals also note that the pandemic has led to more activity in the sector, as people put a greater emphasis on getting all of their estate planning documents in place, from wills to health care proxies.
“We never know when something is going to happen to us,” says Cynthia Turoski, managing partner at Bonadio Wealth Advisors LLC, the financial planning division of The Bonadio Group.
COVID-19 has been a wake-up call for some when it comes to getting their financial affairs in order, she says.
“People think, ‘It can’t happen to me,’ but the pandemic is making it more real to everyone,” Turoski says. “COVID is hopefully motivating more people to get their estate planning documents in place.”
Some of the reasons behind the increased interest are current restrictions the pandemic is placing on the state’s legal system and the fact that if someone contracts COVID-19 they may be unable to take care of their bills and other finances as they battle the virus.
Setting up a living trust — a legal entity created to hold ownership of an individual’s assets — is one way to avoid any lengthy delays in probate proceedings and help create a seamless transaction if a person is facing a long hospital stay needs another person to handle their financial matters in the interim.
There are advantages to living trusts, Turoski notes. For example, a person can seamlessly transfer assets into a trust, which can be managed by trustees if a person becomes incapable without any interruption. Furthermore, if the owner of the trust dies, the trustee can take over and distribute trust assets, which would not require the probate process necessary with a will.
Turoski recommends, however, a living trust in addition to — not in place of — a will since it is possible all of a person’s assets may not have been placed in the trust.
One option to make sure a person is covered is to create a pour-over will, which takes care of any loose ends not included in the living trust, she says. A pour-over will ensures an individual’s remaining assets will automatically transfer to a previously established trust upon their death.
Setting up a trust can mean additional costs, too, so people have to decide whether they want, or can afford, the extra up-front cost, she notes.
According to Turoski, having estate planning documents in place is a priority for everyone, whether there is a pandemic or not.
“If you don’t have these documents, you need to get them,” she says, noting one should work with an trust and estate attorney to draft the necessary documents, including a health care proxy.
Beneficiary designations are important as well, she says, adding that a will only controls certain assets, namely those that are in a person’s name and do not name a beneficiary.
Beneficiary-designated assets such as retirement accounts, life insurance and annuities, however, pass to whoever is named as beneficiary, no matter what the will says.
“It is important to review the overall estate plan and how everything comes together to understand how all assets would flow at death in order to avoid unintended consequences,” Turoski says.
Jason Livingston, a member attorney and head of the trusts & estates department at the Law Offices of Pullano & Farrow PLLC, understands the rationale of wanting to set up a living trust during this time, but adds that its worthiness depends on the circumstances.
“You don’t want to create a permanent solution for what we all hope is a temporary situation,” he says.
A living trust could be beneficial for some, he says, such as front line or essential workers, or those who may be at greater risk for COVID-19 due to health issues.
“If someone is in a higher risk category, I wouldn’t talk them out of it,” he says.
If a person decides to pursue a living trust, they need to do their due diligence, complete the additional up-front work and make sure everything needed is in place to ensure a smooth process.
“If someone shifts their plans because of the current situation, that person would need to take additional steps to fund the trust properly,” Livingston says.
Diana Clarkson, partner at Harter Secrest & Emery LLP, has seen more inquiries related to estate planning in general as a result of COVID-19, especially at the start of the pandemic.
She has not seen anything notable as a result of the pandemic that would prompt people to opt for a living trust over a will, although she says the decision is individualized.
Trusts require more due diligence, Clarkson notes, and all assets must be accounted for.
It is also essential to stay up to date on one’s assets and make any necessary changes to the trust as needed, which could be a challenge.
“It’s human nature to put something on a shelf and forget about it,” she says.
Clarkson believes having a power of attorney in place is critical.
“I’m more concerned a power of attorney is in place during COVID-19,” she says, adding the power of attorney allows that person to handle the finances if the person is in the hospital for an extended period of time. “It’s a very powerful document.”
In addition, the power of attorney is still needed with a living trust so that assets can still be moved into the trust as needed, and to deal with assets that cannot be contributed to the trust.
Clarkson says right now it’s critical to have people to regularly review their assets and make sure their affairs are in place.
“Take a comprehensive look at all of your assets and tie them together in a way that makes sense to you,” Clarkson says.
Andrea Deckert is a Rochester-area freelance writer."