Given the uncertainty surrounding estate planning legislation, not to mention the fact that the busy holiday season is now upon us, we may be reluctant to focus on our estate planning goals. Now is the perfect time to ensure that your estate plans are in shape for whatever the future holds—and here are seven estate planning resolutions to help.
1) Make sure revocable trusts are funded
Revocable trusts are executed to accomplish various planning goals, such as reducing federal or estate tax liability, protecting assets from creditors, providing for a family member with special needs, or controlling the timing and distribution of assets for beneficiaries. These trusts are also designed to preserve privacy and minimize estate administration expenses.
So what’s the problem? Grantors often spend time and money executing a trust to suit their planning goals but then fail to complete the process by actually funding the trust. If your trust has a provision related to a particular asset, the trust should own that asset. Assets not owned by the trust will not be subject to the trust’s provisions.
2) Update the estate plan when personal circumstances change
Often, problems arise when we neglect to update our plans to reflect significant events, such as the birth of a child, marriage or divorce, or a new job. Such changes need to be reflected in estate planning documents to ensure that the documents keep pace with client goals.
3) Ensure that beneficiary designations are up to date
Outdated beneficiary designations can derail an estate plan. If you have experienced life changes, such as a divorce, reviewing the beneficiary designation is important to ensure that assets will be inherited by the intended individual.
In addition, its important to understand the difference between probate assets, which are distributed to heirs through a court process (e.g., real property, bank accounts in the client’s name), and nonprobate assets, which bypass the court process and transfer directly to the heir (e.g., retirement accounts, life insurance listing someone other than the client as beneficiary).
4) Review asset ownership
Similar to beneficiary designations, asset ownership plays an important role in streamlining the client’s estate plan. If assets are jointly owned with survivorship rights, the asset will transfer to the surviving owner, outside of probate or a trust. If a trust is in place to accomplish specific goals, examine the ownership of assets to ensure that the client’s planning goals are met.
5) Ensure that revocable trust documents include retirement plan language
Many grantors have a significant portion of their assets in qualified retirement plans, such as 401(k)s, and have designated a revocable trust as the beneficiary of those accounts. If the trust hasn’t been updated in some time, however, it likely doesn’t contain language to qualify as a see-through trust, which gives the trustee flexibility in dealing with retirement assets. Without such language, the trustee’s options will be significantly limited, and negative income tax consequences may result.
6) Make advance directives part of every plan
Durable powers of attorney for financial matters, as well as for health care matters, are important resources to help protect a grantor’s assets; these directives also pave the way for an authorized individual to act on the client’s behalf in times of need. Without these documents, when unexpected health care needs arise, family or friends may not know which step to take with respect to medical decisions or financial matters.
You should be encouraged to not only execute these documents, but to discuss your wishes with those they have appointed to act on their behalf so there is a clear understanding of responsibilities.
In addition, these documents should be kept current. Recently executed documents are in line with current statutory provisions, as well as easily recognizable by financial and health care professionals.
7) Understand what your documents are designed to accomplish
A regular review can help keep you up to date on how your planning is working for you. Most important, it can help you evaluate whether your plan is the right fit.
Not everyone needs a complex estate plan, and not everyone’s goals are accomplished by basic planning. Regardless, you should understand how your plan works, what it takes to maintain it, and how it benefits you and your beneficiaries.
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