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How do you know it is time for an estate Plan review?
You already may have an estate plan with a Will, a Trust, Powers of Attorney, and perhaps other documents. It is a good idea periodically to review the estate plan documents, your beneficiary designations on retirement assets, and your other assets and family situation, to see if your estate plan still fits. How do you know it is time for a review?
Clearly, if your named executor or guardian has died, you know you need to amend your plan. Other triggers are not as obvious. Here is a list of ten situations that indicate you may need an estate plan review:
1. Changes in your family situation, e.g. divorce, death or disability of yourself, a beneficiary, or an executor or trustee. Under state law, if you named your ex-spouse as executor, that designation is no longer effective. There may be other provisions that you want to revise after a death or divorce.
2. Changes in the law, e.g. an increase or decrease in the state or federal estate tax exemption amount. If your trust was created when the estate tax exemptions were comparatively low, the formulas in your trust will continue to minimize federal estate tax, but your estate may pay Illinois estate tax. Also, funding a family trust which is not needed for estate tax purposes at the new higher exemption amounts can result in large capital gains taxes being paid after the second death.
3. Your estate plan includes an Irrevocable Life Insurance Trust but your total wealth is not expected to exceed $4 million ($8 million for a married couple.) ILITs perform at least two functions. One of them is to provide cash to pay estate taxes. If your estate is not going to be large enough to pay estate taxes, consider saving money on policy premiums by converting the policy to one that can provide long term care benefits - or possibly by cancelling the policy.
4. Significant increase in wealth, and possible need to minimize estate taxes. If your estate plan was created when you were just starting out, and your career has been very successful, learn the strategies for minimizing estate taxes and avoiding probate. As I have said before, Wills do not avoid probate.
5. Difficulties in deciding how to transfer a family business. Estate planners can draft agreements that transfer ownership in the family business separately from its value, thereby customizing your children's inheritances in a fair way that recognizes their unique talents.
6. Changing your residence to a different state. Your Will may be valid under the terms of the state where it was executed, but be invalid in Illinois due to something as simple as the number of witnesses. Also, if you own real estate in more than one state you may be subjecting certain assets to two probate proceedings.
7. The first spouse has died and the survivor wishes to consider income and estate tax strategies. Some planning must be done, if at all, before death. Other strategies can correct an imperfect plan after death, and save thousands of dollars in taxes and costs. Some post-mortem planning has strict time limits, so make an appointment within a few months after the death occurs.
8. You have a trust but your assets are not titled in the name of the trust. If the trust is still necessary, then fund it. Transfer of assets may require an assignment, a deed, or just a letter of direction to place the assets in your trust. If the trust really is not necessary to avoid probate on your assets or for any other purpose, consider revoking it. This determination must consider who will be able to access your assets for your care if you should become disabled.
9. Your retirement assets name your trust as beneficiary. There are some good reasons to do this. However, if you cannot remember why you named your trust as beneficiary of your IRA or 401(k) then please re-visit this decision with your advisor. It can be a costly mistake.
10. Ten or more years have passed since you created or reviewed the estate plan. You may find out that no revisions are necessary- but the periodic review will give you peace of mind.
Two estate plans I recently reviewed included a living trust. Both clients came to me to amend their trust due to changes in their family situations. After some discussion, in both cases, we decided to revoke the trust and use other documents to accomplish the clients' objectives. Another recent estate plan review revealed future layers of unnecessary trusts for capable adult children, which now have been eliminated.
An estate plan review may cost nothing - if the existing plan is fairly simple - to a few hours of attorney time. In many cases it results in making fairly simple edits to the plan which keep it relevant to your family situation. It seems like time and money well spent.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
How do you know it is time for an estate Plan review?
You already may have an estate plan with a Will, a Trust, Powers of Attorney, and perhaps other documents. It is a good idea periodically to review the estate plan documents, your beneficiary designations on retirement assets, and your other assets and family situation, to see if your estate plan still fits. How do you know it is time for a review?
Clearly, if your named executor or guardian has died, you know you need to amend your plan. Other triggers are not as obvious. Here is a list of ten situations that indicate you may need an estate plan review:
1. Changes in your family situation, e.g. divorce, death or disability of yourself, a beneficiary, or an executor or trustee. Under state law, if you named your ex-spouse as executor, that designation is no longer effective. There may be other provisions that you want to revise after a death or divorce.
2. Changes in the law, e.g. an increase or decrease in the state or federal estate tax exemption amount. If your trust was created when the estate tax exemptions were comparatively low, the formulas in your trust will continue to minimize federal estate tax, but your estate may pay Illinois estate tax. Also, funding a family trust which is not needed for estate tax purposes at the new higher exemption amounts can result in large capital gains taxes being paid after the second death.
3. Your estate plan includes an Irrevocable Life Insurance Trust but your total wealth is not expected to exceed $4 million ($8 million for a married couple.) ILITs perform at least two functions. One of them is to provide cash to pay estate taxes. If your estate is not going to be large enough to pay estate taxes, consider saving money on policy premiums by converting the policy to one that can provide long term care benefits - or possibly by cancelling the policy.
4. Significant increase in wealth, and possible need to minimize estate taxes. If your estate plan was created when you were just starting out, and your career has been very successful, learn the strategies for minimizing estate taxes and avoiding probate. As I have said before, Wills do not avoid probate.
5. Difficulties in deciding how to transfer a family business. Estate planners can draft agreements that transfer ownership in the family business separately from its value, thereby customizing your children's inheritances in a fair way that recognizes their unique talents.
6. Changing your residence to a different state. Your Will may be valid under the terms of the state where it was executed, but be invalid in Illinois due to something as simple as the number of witnesses. Also, if you own real estate in more than one state you may be subjecting certain assets to two probate proceedings.
7. The first spouse has died and the survivor wishes to consider income and estate tax strategies. Some planning must be done, if at all, before death. Other strategies can correct an imperfect plan after death, and save thousands of dollars in taxes and costs. Some post-mortem planning has strict time limits, so make an appointment within a few months after the death occurs.
8. You have a trust but your assets are not titled in the name of the trust. If the trust is still necessary, then fund it. Transfer of assets may require an assignment, a deed, or just a letter of direction to place the assets in your trust. If the trust really is not necessary to avoid probate on your assets or for any other purpose, consider revoking it. This determination must consider who will be able to access your assets for your care if you should become disabled.
9. Your retirement assets name your trust as beneficiary. There are some good reasons to do this. However, if you cannot remember why you named your trust as beneficiary of your IRA or 401(k) then please re-visit this decision with your advisor. It can be a costly mistake.
10. Ten or more years have passed since you created or reviewed the estate plan. You may find out that no revisions are necessary- but the periodic review will give you peace of mind.
Two estate plans I recently reviewed included a living trust. Both clients came to me to amend their trust due to changes in their family situations. After some discussion, in both cases, we decided to revoke the trust and use other documents to accomplish the clients' objectives. Another recent estate plan review revealed future layers of unnecessary trusts for capable adult children, which now have been eliminated.
An estate plan review may cost nothing - if the existing plan is fairly simple - to a few hours of attorney time. In many cases it results in making fairly simple edits to the plan which keep it relevant to your family situation. It seems like time and money well spent.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
