If it's been a few years since you completed your estate plan, chances are your will, trust or other estate planning documents could need updating. Reviewing your estate plan is probably not one of your favorite activities, but my review plan will make it easier than you may expect. Run through these questions to determine if your estate plan may need updating. Also, call me at 415-235-9162 to schedule a free consultation and we can talk about whether your current plan needs some updating.
1. Are you missing critical plan components?
I recommend, at a minimum, that all clients have a will, a financial power of attorney and an advanced medical directive that have been reviewed by an attorney within the last 10 years and subsequent to any major life event (marriage, divorce, birth, relocation, etc.).
2. Have you updated your beneficiaries since the plan was drafted?
You may have new beneficiaries you wish to add, such as grandchildren, or beneficiaries you wish to remove, since you established your estate plan. Many times, parents and grandparents want to ensure that assets are held in trust until grandchildren have reached certain ages, but their plan may distribute assets outright, perhaps against their current wishes.
3. Have you updated your executors and trustees?
If you name an executor for your will (or a trustee for your trust) who has died, or is unable to serve, and no successors are named — the court will appoint someone else. Oftentimes, this will be a beneficiary, making it even more imperative to keep beneficiaries current.
Also, people often name a family member or close friend as a trustee or executor, but most of the time, these individuals are unaware or unable to perform the responsibilities that come with the role. Sometimes, it makes sense to appoint a third-party representative, like a bank or a trust company, to serve as trustee. This will ensure that your assets will be managed according to your directives and will remove the possibility of putting a friend or family member in a tough situation.
4. Have you made plans for your personal effects?
Though not as critical as other aspects of an estate, leaving it to beneficiaries to determine the ownership of personal items, like jewelry and family heirlooms, can cause a tremendous amount of family discord. It’s easy to divide an investment account, but it’s not as easy to split an engagement ring. If you do not spell out who should get your personal items when you die, you may unintentionally leave your loved ones with a host of difficult decisions to make, which can put unnecessary stress on family relationships. If you have already executed your will, consider using a codicil to specify how your effects should be distributed.
5. Have you reviewed your life insurance policies?
Many retirees own life insurance policies that haven’t been reviewed since they were originally executed. It's vitally important that you review them, to ensure they will perform as you intend them to. Oftentimes, when you review the details of your policies, you find that liabilities have crept into your situation, and that there are many opportunities for improvement.
One of the most common issues people run into with a neglected policy is that it has not been funded properly and has lapsed, which typically requires a hefty premium to keep it in force.
6. Does your plan reflect the current estate tax exemption?
Since 2008, the estate tax exemption has more than quintupled (from $2 million to $11.2 million for individuals). If you have significant wealth, this creates a unique planning opportunity that you may not be aware of. Many estate plans were designed prior to these rather significant changes to the tax code and often, the outdated structure causes more harm than good. The latest exemption changes resulting from the Tax Reform and Jobs Act of 2017 are scheduled to “sunset” in 2025, which further demonstrates the need to work with a qualified estate attorney or wealth adviser who really understands your situation.
7. Have you listed (or updated) beneficiaries on your IRAs, 401(k)s and annuities?
There are significant benefits to inheriting retirement savings through a beneficiary designation, as opposed to leaving these assets to your estate, and having them distributed by the terms of your will or intestate law. Passing these types of accounts on via a direct beneficiary designation averts the probate process, which saves time and costs, and awards a key benefit: Beneficiaries are permitted to keep the majority of the assets in these tax-advantaged accounts for many additional years.
Additionally, Roth IRAs are tax-free from a distribution standpoint, not only to the owner, but to the beneficiaries as well. It may be appropriate to leave IRAs and other tax-advantaged accounts to grandchildren, as it allows for the possibility of decades of tax-deferred and potentially tax-free distributions, which can be an extremely powerful estate transfer strategy.
8. Have you moved out of state, but haven’t updated your estate documents?
Every state has different laws that govern estate planning. If you move from one state to another, it’s critical to have an attorney who is familiar with that specific state’s laws revise your documents to ensure they are compliant with your state of primary residence.
If you own property in multiple states, your executor will have to go through the probate process in every state in which you own property. In these cases, we often recommend placing ownership rights to those properties in a revocable living trust, as it generally averts the probate process and the costs/time associated with it.
Medical powers of attorney and other advance directives executed in a previous state may also be ruled invalid in your new state of residence, depending on the state.