Why Review Your Estate Documents?

When was the last time you reviewed your estate documents?  If it has been awhile, you are not alone.  Last week I spoke with a bright, successful entrepreneur with a lovely family who confessed that he had not reviewed his estate documents in over 10 years.

As part of our proprietary Wealth Legacy Assessment™, I often review clients’ estate planning documents including Wills, Living Trusts, Advance Health Care Directives, Financial Power of Attorneys, and other related documents.  Again and again I find that people do not periodically update these vital documents, and are often missing one or more key items.

Have You Properly Transferred All of Your Assets Into Your Living Trust?

There are many reasons why you should periodically review your Living Trust.  One of the biggest issues I see is that, although the Living Trust may look great on paper, clients have not taken the steps to actually transfer all of their assets into the Trust.  And even if they successfully transferred their assets when the Trust was originally created, they may not have transferred newly acquired property as it was acquired.

A common pitfall occurs when clients refinance their residence.  To refinance the house, the client has to transfer the ownership of the property from their Living Trust into their own personal name.  After the refinance has been completed, the client forgets to transfer the property back into the name of the Trust.

If you have not transferred all of your property into your Living Trust, the property outside of the Trust will, upon your death, have to be distributed to your heirs through state court probate proceedings.  And probate proceedings take a good deal of time and expense to complete.

Do You Need To Add Additional Information To Your Estate Documents?

A review of your estate documents may reveal that you need to add additional information to the documents.  Common situations where you may want to add additional information are as follows:

Do your estate documents give an outright distribution to your children or grandchildren?  If so, you may want to consider a “Discretionary Trust,” which can shield the children’s inheritance from creditors or protect it from distribution to an ex-spouse should they marry and then divorce.  It also keeps the assets free of Federal estate tax (and State inheritance tax if there is one in your child’s state of domicile.)

Do you have a “Trust Protector” named in your Living Trust?  A Trust Protector is a person or an entity that oversees the work of the Trustee.  The Trust Protector may be able to fire the current Trustee and appoint a new Trustee if the current Trustee is not following the terms of your Trust.

Do your estate documents discuss your intentions regarding funeral arrangements, burial or cremation, and organ donation?

Are There Changes in The Law That Effect Your Estate Plan?

Another reason to periodically review your estate documents is because of changes in the law.  Due to changes in federal law, you now need a release and authorization under the Health Insurance Portability and Accountability Act, commonly abbreviated “HIPAA,” with any estate documents that relate to planning for disability.  For example, if you do not have a HIPAA release and authorization in your Advance Health Care Directive, then your health care proxy may be unable to access your medical records and therefore be unable to establish your incapacity to make informed medical decisions. 

If you have the typical “A-B” trust configuration in your Living Trust, consider using a “probate avoidance” Trust because of changes in the law.  Under the previous rules, it was a “use or lose” structure. If you did not create a bypass trust (also known as an exemption trust) that took advantage of the estate tax credit – you lost its benefit.  Now, under the new provisions in the American Taxpayer Relief Act of 2012, we have the so-called “spousal portability” rules.  Each spouse has a credit against federal estate taxes, which is indexed for inflation.  In 2015, the inflation adjusted amount is $5.43 million. The $5.43 million credit is “portable.”  This means that if you die without having created a bypass/exemption trust to hold your portion of the estate assets, your spouse can use your “unused” estate tax credit.  Based on this new federal law, you may no longer need to have the bypass/exemption trust included in your Living Trust, or perhaps not for both you and your spouse.  For example, one spouse can still use the bypass/exemption trust, but another might not.

Have Circumstances Changed Since You Completed Your Estate Documents?

A final reason to periodically review your estate documents is because your personal circumstances may have changed.  You may have had changes in your family situation, such as a divorce or separation, death of a spouse, or you may have gotten married.  Changes may have also happened to a beneficiary who is named in your Will or Living Trust.  Or you may have had a change in your attitude or relationship with an Executor/Executrix, Trustee, Guardian, Attorney-in-Fact, or Conservator in your estate documents and may want to name a more suitable replacement.

I frequently see a married couple named as the Guardians for children or grandchildren, but the couple has since divorced.  You will usually want to amend your estate documents to name only one of the divorced couple as the new Guardian or choose someone else.

If you have not reviewed your estate documents in a long time, then please contact my office at Wealth Legacy Group so that we can thoroughly review these important documents and make recommendations.

In order to help my compliance officer sleep at night, please note that I am neither an attorney nor a certified public accountant and recommend that you seek outside professional counsel before engaging in any potential recommendations discussed below.

Imagine That™”!

Imagine That™! is a complimentary monthly newsletter provided by Wealth Legacy Group®, Inc. that addresses various topics of interest for high-net-worth and high-income business owners, professionals, executives and their families. To be added to our monthly list, please click here.

Written by R. J. Kelly – May 2015

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