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Does your estate plan need a tune-up?

By: Louis Feldman

For most people, we drive our cars every day, and after a certain number of miles, we can tell when it’s time for a tune up.  However, unlike our cars, few of us consider when it’s time to tune up our estate plans.  While many have changes in their lives, i.e. marriage, children, divorce, moves from one state to another, etc., updating their estate plan is often ignored. 

Once you have created your estate planning documents, it’s easy to put those documents into a draw and never think about them again.  However, that is exactly what you do not want to do.  Keeping your estate plan updated can be just as important as developing your estate plan in the first place.  Normally, it’s a good idea to revisit your estate plan when contemplating or experiencing any major life events.  For instance, we commonly see situations where a couple’s marriage is not their first, have suffered the loss of a loved one, have move from one state to another, or have purchase a second home or vacation home.  These situations would magnify the importance of reviewing an estate plan.

For us, many people we encounter have already executed their estate planning documents, and if not, we highly recommend they meet with an attorney.  Many feel their estate planning affairs are in order, after all, they usually met with an attorney years ago.  Unfortunately, some estate plans we review are often incomplete or are not updated to address the changes in people’s lives.  One part that gets overlook is the increase in the federal estate tax exemption, (also known as the applicable exclusion) which is currently $5.45 million in 2016.  As the estate tax exemption is indexed with inflation, and will continue to increase, you should review your estate plan to see if provisions in the documents have become out of date and are no longer needed due to changes in the law.  For everyone, the higher exemption is welcomed, however, there are those few who may still have old estate plans which were designed to fight estate taxes that no longer threaten their family’s wealth.  These documents are prime for a tune up.

There are a variety of ways to ensure that your wishes will be carried out after you’re gone.  For some families, an estate plan may consist of a plan to transfer all the assets from one spouse to another.  This is the simplest plan and the easiest to execute.  However, leaving all your assets and the decision of how to dispose of them to the surviving spouse may not necessarily be for everyone.  You may be unwittingly building in a future estate tax problem, lose control of the final disposition of the assets, or fail to provide a management structure for your survivors. 

One alternative to leaving everything outright to a spouse is to incorporate a trust into your plan.  There are many different kinds of trusts which can be part of an estate plan.  There are marital trusts, charitable trusts, generation-skipping trusts, bypass trusts, testamentary trusts, and so on. 

One trust which is popular in estate planning is a living trust (also known as a revocable trust).  A living trust is a written legal document that partially substitutes for a Will.  Living trusts are commonly used as part of an estate plan, and with good reason.  Essentially, the living trust is your alter ego.  You, as the settlor of the trust have the ability to change provisions of the trust, property of the trust or beneficiaries of the trust at any time.  With a living trust, your assets (your home, bank accounts and stocks, for example) are put into the trust, administered for your benefit during your lifetime, and then transferred to your beneficiaries after your death. 

The benefits to having a living trust is first, to let you retain control over the trust property while you are alive.  Another benefit is that the trust allows you to avoid a guardianship in case you become incapacitated and can no longer handle you own financial affairs.  Upon becoming incapacitated, a successor trustee may automatically take your place and manage the trust assets for you.  Lastly, property of the trust passes outside of probate when you die. The assets in the trust do not pass through your will, and therefore can result in a faster transfer without additional costs.

As such, a living trust can be a great way for an individual to make sure their wishes are followed after their death, provide for a fast distribution of their assets, avoid unnecessary taxes, and keep financial affairs private. 

Remember, your estate plan is like your car.  With proper attention, maintenance, and care they both work well and provide a vehicle to help you get from here to there.  When neglected, neither runs properly and the result can be unintended.  Having a good estate plan is imperative to help protect your loved ones through difficult times.  Even if you have one in place, it’s important that you continue to take care of it and update it accordingly.  We recommend reviewing your estate plan frequently with an experienced professional to ensure that the plan still works under current laws and financial circumstances.  Tuning up your estate plan will help protect your family and ensure your wishes.

Investor Solutions does not provide accounting, investment, tax, or legal advice.  The information presented herein is not intended to provide specific advice or recommendations for any individual and does not take into account any individual’s personal circumstances.  You should consult financial, tax or legal professionals for specific information regarding your individual situation.