Estate Plan Check-up

Just as you should periodically review your investments to determine if they are meeting your current objectives, you should periodically have your estate plan and the related estate planning documents reviewed .  If you haven’t had your estate planning documents reviewed recently, perhaps it is time for a check-up.  In our practice, we find that estate plans need to be reviewed or modified for the following reasons:

                   1. Changes in circumstances of beneficiaries -Many people experience changes in their family circumstances since their estate planning documents were drafted.  Often the beneficiaries selected and/or the manner in which they have been provided do not meet with current objectives. Children and grandchildren are born and sometimes die.  Marriages, divorces, and various changes in the physical or mental capacities of beneficiaries occur.  Relationships deteriorate or improve causing changes in the amounts to be provided.  Sometimes it is desired to provide greater flexibility to a beneficiary (e.g. giving a spouse a special power of appointment in a trust).  Conversely, it may be desirable to impose greater restrictions (e.g. in a second marriage).  Finally, some beneficiaries may be vulnerable to being sued causing concerns about creditor protection.

                   2. Changes in selection of fiduciaries  – Sometimes the people selected to carry out the terms of a will or trust are no longer logical choices.  Some children grow up and become mature enough to handle such responsibilities.  Others clearly prove themselves to be quite incapable in this regard.  Some people move and it becomes impractical to have them act.  Conflicts between the fiduciaries and the beneficiaries arise.  Children fight among themselves or with a step-parent.  Sometimes the estate plan has become more sophisticated and requires a fiduciary with greater expertise (e.g. a bank or trust company) to act.  

                   3. Changes in the law – In certain cases, changes in the laws, particularly the tax laws, make it advisable to update or modify one’s estate planning documents. Also many people move here from other states and fail to have their documents modified to comply with Florida law. For example, in late 2011, the Florida legislature completely overhauled the statute relating to Durable Powers of Attorney documents by creating  “ The Florida Power of Attorney Act” (Florida Statute 709). As a result, many Power of Attorney documents should be reviewed and updated. For practical purposes, it may make sense to update these documents as the financial institutions that may rely on these documents may be more comfortable and quicker in  accepting documents executed in conformity with the new law.  In prior years, the statutes relating to Living Wills and Designation of Health Care Surrogate documents were modified.  

                   4. Federal Estate and Generation-Skipping Taxes and Changes to the Internal Revenue Code -Some people with assets in excess of the tax exemptions fail to properly plan to reduce, eliminate or anticipate their federal estate tax exposure. Other Florida residents owning property in states which have a state inheritance tax that may be imposed fail to plan to avoid such taxation.  In past years,  married couples would often fail to provide bypass trusts for each other to take advantage of their combined unified estate tax exemptions. With the relatively recent advent of higher estate tax exemptions, under the American Taxpayer Relief Act of 2012 (know as “ATRA”  the estate tax exemption was established at $5 million and has since been indexed for inflation.  Currently the exemption is $5.34 million per spouse in 2014).  Thus, the focus for many married couples has now shifted to income tax planning to obtain a stepped-up basis at the death of the second spouse. Furthermore, the US Supreme Court has recently decided that gay marriages that are valid in the state in which the marriage occurs will be respected as an other marriage for Federal estate, gift and income tax purposes.  Finally, the creation of a new creature in the estate tax code known as “portability” will allow a deceased spouse’s representative to port over the unused estate tax exemption (of the first spouse to die) to the surviving spouse (subject to certain limitations).

For those who will still have an estate subject to Federal estate tax, such techniques as Irrevocable Life Insurance Trusts (ILITs), Qualified Personal Residence Trusts (QPRTs), Crummey Gift Trusts,  and Intentionally Defective Grantor Gift Trusts (IDGTs) should be considered.  For those charitably inclined, Charitable Remainder and Charitable Lead Trusts should be considered.

                   5. Avoidance of Probate – It seems like everyone today wants to avoid probate, but not everyone does it successfully.  Many people establish living trusts with this intent, but fail to avoid probate because they have not properly re-titled their assets into their living trusts.  Others devise their own probate avoidance plan by creating joint tenancies and utilizing other “pay-on-death” methods.  Unfortunately, some of these people leave themselves with problems much greater than probate. Assets can pass in an unintended manner or in a manner not protected from creditors which may include in-laws in a divorce proceeding. Sometimes estate tax burdens and other liabilities can be unintentionally shifted. Consequently, the intended estate plan fails. Your estate planning attorney should review how your various assets are titled so that your overall objectives are accomplished.     

                   6. Special Assets– Certain assets require careful attention. The beneficiary designations on life insurance policies, annuities, pension plans and IRA’s need to be coordinated with the entire estate plan.  Also, numerous issues regarding real estate, especially when it is located outside of Florida, may need to be addressed.  Finally, interests in family businesses usually can also raise a multitude of issues.    

                   7. Incapacity and Terminal Conditions – Everyone should try to plan for the possibility of becoming incapacitated or becoming terminally ill.  Consideration of Durable Powers of Attorney, Health Care Surrogates and Living Wills is usually appropriate.

Most importantly, seek professional help with expertise in this field.  If you had a heart problem, you’d go to a cardiologist rather than a general practitioner.  Certainly, you wouldn’t treat yourself.  Seek an attorney that specializes in estate planning.

Mark Schaum is an attorney Board Certified in Wills, Trusts, & Estates and is also a CPA.