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Giving Your Estate Plan a Spring Cleanup

Spring cleaning has me thinking I may need to update more than my window treatments. What changes should I be making to my estate plan?
April 25, 2018
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Question: Spring cleaning has me thinking I may need to update more than my window treatments. What changes should I be making to my estate plan?

Answer: Spring has sprung! Warmer temperatures and more daylight have a way of inspiring people to refresh their houses and cleanup their yards to make way for the summer season. Not unlike our homes and yards, your estate plan may be in need of a spring cleanup too! If it has been a few years since you have visited with your attorney, now is the perfect time to review your plan to ensure that your documents are up to date. Here are a few topics you may want to revisit:

1. Have you funded your trust? While trusts have been a popular estate planning technique for many years to protect assets and/or avoid probate, it is important to recognize that trusts are only as good as the assets they own. In other words, unless you have taken steps to actually re-title the asset in the name of your trust, the trust is not protecting the asset. All too often clients leave their attorney’s office thinking that their annuities or investments have been put in their trust, but unless documentation is completed changing the ownership, the asset has not been transferred. A good tip to see whether or not the asset has been transferred is to review your monthly statements to see who owns the account. If your statement is coming in your individual name, instead of in the name of the trust, it is likely that the account is not in the trust.

2. Are you protecting your beneficiary’s inheritance? A rather new technique in trust planning is leaving assets to your beneficiaries in trust rather than outright. The benefits to these descendants’ trusts or inheritors’ trusts are that they give the beneficiary creditor protection, protection against divorcing spouses and ensure that the assets pass tax free to the next generation. All this and the beneficiary can be their own Trustee. If you have not already incorporated inheritors’ trusts into your estate plan, you may want to consider adding them in.

3. Do your beneficiary designations coincide with your estate planning documents? Another common oversight is not coordinating your beneficiary designations with your estate planning documents. Not all assets pass through a Last Will and Testament or a trust. As we mentioned above, assets will only pass through a trust if the trust is designated as the owner and/or beneficiary. The only assets that will pass through a Will are those that are in the decedent’s estate; that is, in the decedent’s sole name when they pass away with no beneficiary designation. Assets which are jointly owned with another person or which designate a beneficiary will not pass through a Will, but rather will pass by operation of law. However, if you have invested the time and money to put together an estate plan you will want to ensure that you are utilizing your documents to their fullest potential. For instance, if you have incorporated inheritors’ trusts or trusts for the benefit of disabled or minor beneficiaries, you will want to designate those trusts as the beneficiaries of your assets, rather than the beneficiary outright. A word of caution with retirement accounts; not all trusts may be able to accept retirement accounts without a negative tax consequence. Be sure to discuss your beneficiary designations as part of a comprehensive review of your estate plan.

 4. Are you over-planning for estate taxes? Since the estate tax exemptions have become so large, $11.18 million for Federal Estate Tax and $5.25 million for New York Estate Tax your older estate planning documents may have tax planning which is no longer applicable to your estate. Moreover, some estate tax planning may actually hurt your beneficiaries if estate taxes are not an issue in your estate. For instance, some trusts that remove assets from your estate for estate tax purposes will force your beneficiaries to lose a “step-up” in cost basis which would save capital gains tax. Make sure your documents are saving your estate the right taxes!

 5. Have you updated your Power of Attorney? Everyone always focuses on their Wills and Trusts but Powers of Attorney and other advance directives are just as significant. It is important to remember that not all Powers of Attorney are created equal! Powers of Attorney which allow you to designate someone to make financial decisions for you are only as good as the powers enumerated within them. There was a significant change in the Power of Attorney law in 2010 which changed the statutory form in New York State to include a gift rider which allows the agent to move money out of the principal’s name; a very important power if Medicaid planning is needed in the future. Be sure not to overlook your Power of Attorney and update same if necessary.