Did you make a New Year’s Resolution for 2021? Maybe you resolved to lose weight, save money, travel, or spend more time with family. This year I would encourage you to also resolve to address your estate plan. It may not be as sexy as resolving to get back to your college weight or seeing Paris at night, but I assure you it is just as important. An estate plan is an investment in your own peace of mind knowing that your own interests and wishes, as well as those of your family, are protected.
The following questions may help you to start thinking about your own estate plan and the types of questions you should be asking.
Review Your Estate Plan
Family dynamics change all the time. People get married, divorced, have children, and all of these life changing events can impact your estate plan. As such, it is important that you review your plan and ask some basic questions:
- Does your Will accurately reflect who you want to inherit your estate? Maybe you have had additional children since your Will was first executed? Or maybe you now have grandchildren? It is important that your Will accommodates these changes.
- Do the trust terms set forth in your Will still apply? If you have children there is probably a testamentary trust in your Will. This provision controls how assets passing to your children will be managed and distributed. Maybe you have recently had your first grandchild? Maybe you have a child with marital or creditor issues? Or maybe your child has had issues with drugs or alcohol? All of these issues could require revisions to the trust provision in your Will to protect your child’s inheritance.
- Do the fiduciaries you selected in your estate plan still make sense? When you drafted your plan you named an executor, a guardian, a trustee, and you most likely named agents to act as your power of attorney for finances and medical decisions. Do you still have a relationship with the individuals you selected to these roles? Are there other people who may be better suited to fulfill these roles? Can the individuals you selected still fulfill these roles? It may be important to rethink these selections and update your estate planning documents accordingly.
If You Don’t Have an Estate Plan – Get One
As I mentioned above, an estate plan is an investment. But it is not just an investment for the wealthy. And the process does not have to be overly complicated. At a minimum, individuals should sign a Will, Durable Power of Attorney, and a Durable Health Care Power of Attorney and Living Will. These documents will ensure that you have someone to handle your finances and make medical decisions if you were ever to become incapacitated, and also set forth a plan for the distribution of your assets and the care for your children upon your death.
Review Beneficiary Designations and Inventory Assets
It is important to understand that assets with beneficiary designations such as 401Ks, IRAs, life insurances, etc., get distributed pursuant to those designations – and not based on the terms of your Will. These assets typically make up a large percentage of someone’s estate, so it is incredibly important that these designations be reviewed and updated. You certainly do not want your 401K paid to your ex-spouse, or your life insurance paid directly to your child after you went to the trouble to set-up a trust in your Will.
Additionally, and in order to assist your Executor to administer your estate after your death, you should compile and regularly update an inventory of all your assets. This inventory should include a description of the assets, how they are owned, and identify the beneficiaries.
It is also a good idea to compile a list of digital assets along with your username and password. Digital assets can include social media accounts, bank accounts, cryptocurrency accounts, online storage accounts, photo accounts, websites, and a host of other assets. It is important that your family not only know what types of accounts you own, but also what your intentions are with those accounts when you die. Do not be that gentleman from Britain who threw out his computer with the passwords to his Bitcoin account, thus jeopardizing his rights to those assets – which are now worth close to $300,000,000.00.
Review Your Plan with Your Family
Review your estate plan with your family. Provide them with copies of your documents so they understand your plan. I often encourage clients to schedule a meeting with me to review their estate plan with their children. It gives the children an opportunity to ask questions and learn about the process, but it also helps them understand their parents’ intentions.
Familiarize Yourself with Death Taxes
It is important that you understand death taxes. The Federal estate and gift tax exemption increased to $11.70 million per individual in 2021. This exemption may not apply to you now, but there is talk that the Biden administration may reduce the estate tax exemption to $3.5 million per individual, and the gift tax exemption to $1.0 million per individual. We do not know if this is certain, or when any changes will take effect, but you should certainly start talking to your financial and tax advisors to see if these changes will apply to you and plan accordingly.
This is not an exhaustive list of questions related to an estate plan, but I am hopeful that it will at least help provide a little information to spark dialogue. Don’t be afraid to talk to your tax professional, your financial advisor, or your attorney, and ask questions. If you have a plan – understand its limitations. If you don’t have a plan – learn what you need and get it done. This is one New Year’s Resolution that will have a lasting effect.
Stephen M. Porter is an attorney with MacElree Harvey, Ltd. He helps clients navigate the estate planning process, and provides advice on tax related issues, trusts, and philanthropic planning. He also helps small businesses with choice of entity questions, and succession planning. Steve can be reached at (610) 840-0256 or [email protected].