Most people can agree that no one wants to see the pain and suffering that the COVID-19 pandemic has caused.  Family lives have been disrupted, education put on hold and great uncertainty about what the future holds.  It has also been remarkable to see how people and businesses have stepped up when they were needed the most.  By all accounts the pandemic is not over and we will have to continue as individuals and businesses to change and adapt.

In 1976 M. F. Weiner wrote an article in the journal Medical Economics entitled “Don’t Waste a Crisis — Your Patient’s or Your Own.”  While this quote was meant to improving the overall health of a patient undergoing medical treatment, it certainly applies to the times we are in dealing with COVID-19.  If you find your business is “sick” there may be opportunities to take advantage of this sickness with estate planning.

As a prudent business owner, it is imperative that you do everything in your power to take care of your stakeholders, including your business partners, family and employees.  It is important to know your estate value and determine the best way to handle the assets in your estate.  This includes the value of any closely held businesses interests. Because of the effects COVID-19 is having on markets and businesses, you may be able to transfer the value of your estate to your heirs for far less value than in the pre-COVID-19 days.

Business valuations are typically based on the value of the assets.  This is either the individual assets the business owns or the value of the underlying cash flows.  As the effects of COVID-19 have caused all of us to change our behaviors, for many businesses this has caused a lot of strain on their cash flows.  In determining the value of the business under an income approach, the valuator looks at two items – the future cash flows and the underlying risks associated with those cash flows.  Because of COVID-19, these factors have most likely been impacted and this could result in a reduction in the value of your business.  This may be the perfect time to develop the plan to get the value of your business out of your estate at a reduced value.

For 2020, the current estate tax exemption is $11,580,000 for an individual and $23,160,000 for a couple.  This will continue to be indexed for inflation through the year 2025 when the exemption will return to $5,000,000 (adjusted for inflation) in 2026 for an individual.  Many individuals with modest and large estates will be looking at their estate values before 2026 to take advantage of the current exemption levels.  Because of the COVID-19 pandemic, it may be advantageous to look at it now and not wait until 2025.

If you have questions or need assistance with your valuation or estate plan, please contact your Somerset advisor at 317-472-2200.