Tom and Kathy thought they had their
estate planning in order as they approached retirement. A
few years ago, they worked with an attorney who created
living trusts for them as well as other estate related
documents. When they purchased a second home in Wisconsin,
they didn’t give a thought to revisiting the plan. On
their deaths, assets passed nicely with a minimum of
complication and expense. All except the property in
Wisconsin. Because the property was not funded into their
living trust, the real estate had to go through probate,
which meant significant additional expense and
inconvenience to the family.
Most of our clients want to make sure
that their plans take advantage of all lifetime benefits
and also make estate administration as simple and cost
effective as possible.
The best way to do this that is to
make sure you keep your plan and your documents up to
date. Failure to keep things current can be very costly.
Estate planning is more than just
planning for death. Let’s take a look at some of the life
changing events that might cause you to schedule a review.
a move to another state
For many clients, a move to a new state should trigger an
estate plan review. Will you be a permanent resident? Will
you be part time? The answer to these questions and others
will determine your legal residency and control such
things as state income tax, inheritance tax and other
issues about administration of your affairs if you become
disabled or die. The rights of your spouse and the rights
of your children may change along with a change of
address. Assets may need to be retitled in order to make
sure your wishes are accomplished. Important benefits may
be lost as a result of a move to a new state.
Most state laws have provisions for
cancelling out bequests to ex-spouses after divorce. But
that may just be the beginning. It is also important to
check beneficiary designations on other assets such as:
- Life insurance, both individual and
- Retirement plans like IRAs,
Divorce also means the loss of
important tax deferral advantages which could mean a
significant estate tax due at death. This is also a good
time to re-think the overall distribution scheme of an
estate plan. All good reasons for a review.
Of course, re-marriage triggers a
similar need for review and updating.
Many highly paid executives need to
pay close attention to updating their estate plan when
changing jobs. This is because new employment may bring
new benefits, such as incentive plans, deferred
compensation, restricted stock or stock option grants, and
new life insurance. All of which should trigger a review
of the existing estate plan.
buying a second
Buying a second home is another cause
for an update. How you own the property (in trust, in an
LLC, etc.) can affect issues such as state taxes and
transfer costs. Liability protection may also be at issue
if the property will be rented out from time to time.
Also, thinking about how to pass the property to heirs
becomes important. Do your children want to keep the
second home after you die? If so, how will they deal with
maintenance costs, repairs and use? Will you set up a
separate fund? Will all of your children be able to afford
their share of the costs? All of these issues can be
explored and dealt with in a review.
changes in the tax code
For larger estates, a changing tax code is reason enough
to keep your plan updated. Over the last 10-12 years,
there have been numerous tax changes. And now, it looks
like the old estate tax will come back into play in 2011
and most clients with $1,000,000 or more in assets will
need substantial review.
selling or buying a business
In many ways, selling a business makes estate planning
easier, since you now are dealing with a liquid asset
(sales proceeds) as opposed to a non-liquid asset that may
be hard to divide among family members. This means that
current provisions concerning ongoing operations of the
business may no longer be applicable and should be
Buying a business will also trigger the need for a review.
Depending on the type of business and the involvement of
other family members, you may need to update your basic
documents as well as deal with business succession and
buy-sell issues. Lack of liquidity may now be an issue and
you may want to consider adding life insurance to your
estate planning picture in order to provide liquidity for
estate equalization, debt repayment or estate tax. Finding
the most tax efficient ownership structure for life
insurance is another reason for an update or review.
winning the lottery
Of course winning only happens if you play. For those who
do play and win, issues such as lump sum payouts versus
lifetime payouts, estate taxation, privacy issues and
investment analysis all now come into play. In most cases,
a substantial lottery award will necessitate a complete
restructure of your estate plan.
changes in the law
change at the federal or state level which requires a
review of your estate plan. Over the past several years,
changes to HIPPA privacy laws have been enacted which
impact your health care power of attorney documents.
Various changes in laws at the state level affect estate
taxation. All of these changes suggest a review.
additions to your family
In many cases, new additions to your family will be
handled by your existing estate plan. In cases where you
may have made special arrangements for children or
grandchildren, you will want to set a review to make sure
that all is being handled properly.
death in your family
Like divorce, the death of a spouse can mean a major
change to your estate tax picture. In the event of the
death of another family member, you will want to double
check that your distribution scheme continues to work the
way you want it to.
a family member has become dependent on you
Numerous families are now dealing with the issue of aging
parents. Some have taken over the role of key care-giver
and need to make sure that if something happens to them,
alternative plans are in place for looking after an aging
or ailing parent. This could include things like a
specific carve out of assets for parents or creation of a
detailed successor care-giver structure.
a substantial change in the value of your assets
Successful business owners or real estate developers will
see long term growth in their asset base. For others, this
growth can occur overnight. Either way, changes in net
worth should trigger a review to make sure that value is
maximized and that assets go to the right place with a
minimum of tax.
you receive a sizable inheritance or gift
Of course, another way your net worth can increase is as
the result of a substantial gift or inheritance. Like a
lottery winner, such increases tend to happen overnight
and tend to make reviews and updates very important.
you are retiring
Estate planning and financial planning are subjects that
become particularly important at retirement. Beneficiary
designations, decisions on withdrawals from retirement
accounts as well as many other issues are key factors
triggering the need for an update.
purchase of life
insurance or changes in insurance coverage
Life insurance is
one of the most effective tools available in estate
planning today. As such, it is important to track the
performance of these policies and make sure that items
such as ownership and beneficiary designation stay
current. Estate tax issues may also come into play. Life
insurance changes can often be overlooked, especially when
the change is due to a new job and a new benefits package.
death or change of
The people you
name for these positions are most often chosen for their
relationship, specific skills and abilities. A change in
your relationship with them or in their ability to serve
will mean a need to update.
If you think you may need to review
here to have our office call to set up a time to
discuss this with you.
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