Estate Plans Are Not “Set It and Forget It”

If the title of this article caught your eye, you likely have spent time, energy and resources establishing a thoughtful estate plan. You have presumably run through a variety of questions and scenarios with your estate planning attorney. You understand the importance of structuring your estate plan appropriately for your family and your financial situation. The energy involved in this process cannot be understated.

The problematic piece lies in the time between when those estate planning documents are executed and when they become operative. In many cases this can be years, even decades. Many changes happen during this span of time including asset growth or possibly depletion, family structure, personal goals and motivations, and inevitably, laws and tax reform. Nothing remains the same.

This is not meant to scare you, but rather is intended to serve as a set of reminders to store away. Even a basic understanding of some of the simplest traps and missteps can help protect that aforementioned estate plan. The fundamental takeaway is if you find yourself or your family in a changing personal or financial situation, it would be an appropriate time to contact your Greenleaf Trust client centric team, estate planning attorney or tax advisor to ensure your eventual intentions are not disrupted.

Here are a few common points at which people take unfortunate missteps and unknowingly alter their intended plan.

Asset Titling

As your estate planning attorney likely expressed, the way you title your assets is critical for the success of your estate plan. This begins by correctly titling your current assets when you establish an estate plan. Titling or retitling may apply to assets such as real property, investment accounts, and checking and savings accounts among others. Generally, your estate planning attorney will provide a titling plan in keeping with your objectives. The plan may include assets which should be retitled to your trust. In some situations, it may include designating your trust as the “Transfer on Death” (TOD) or “Payable on Death” (POD) beneficiary. It is crucial to complete the intended titling and retitling as soon as feasible. Asset titling supersedes your trust document, so if you delay this step and don’t complete it before your passing, your trust document may not have any power over those assets.

The importance of titling continues after the creation of your estate plan and proper titling of your assets. If you establish a new account, or obtain a new asset, be thoughtful with the titling of that asset. It may be necessary and appropriate to contact your financial advisor to discuss appropriate titling.

A common titling technique for aging adults is the addition of an adult child to an account as a joint owner. This is often done for convenience as that child may be assisting with bill pay or other financial matters. Again, this titling will supersede your trust document, so be mindful and intentional when you use this option. Technically, when you pass away, that joint owner now individually owns that asset regardless of what your trust document directs. Your trust may say to split all assets among your three living children, but that joint owner may decide not to comply with that direction at your passing and may rightfully take the account. If you’d like assistance with your finances from a friend or family member, there are many possible routes to achieving this without negating your intentions. Again, your team of financial professionals can help you determine an appropriate solution.

The last point on this topic is to beware of inadvertently triggering a probate proceeding at your death. This could happen because you never got around to retitling an asset to your trust, and it remains in your sole name at your death. Or, you intentionally named a POD beneficiary, but that person predeceases you and, again, this asset is in your sole name with no contingent beneficiary.

Updating Documents with Family or Economic Changes

This reminder is exactly as it sounds. As catalytic events in your life unfold, you may need to review and revise your estate plan. The above example used to illustrate how you could inadvertently trigger probate because your intended beneficiary dies before you could also be applied to this topic. The death of a potential beneficiary of your trust/estate is a stopping point where you should evaluate your planning to determine if an update is necessary.

In addition to death, other life changes that could affect your estate plan include marriage and divorce. Even the divorce of an adult child could require a revision of your plan. Even joyous changes like births or adoptions in the family may require a change. Depending on how your estate plan is written, you may need to specifically add the name of the new family member. Another important time to evaluate your estate plan would be if it is determined that a beneficiary of your trust/estate has special needs. It is important to make certain there is appropriate language in your trust so that the assets are protected for the special needs beneficiary while also confirming that the language in the trust does not adversely affect the beneficiary’s ability to collect government assistance.

Lastly, economic changes will likely require conversations around your planning. If you experience a significant change to your overall wealth, or if laws and tax codes have changed, it will be important to think about how your estate plan may be affected. For some of you, the answer may be “not at all.” Many estate planning attorneys allow for flexible and adaptive planning, but it is worth a conversation.

Don’t Ignore the Personal Effects

You may be surprised to learn that it is so often the “things” that beneficiaries get caught on. Even in the largest estate, beneficiaries may wind up fighting over a valueless tea cup or jewelry that they could replace in a minute with their inheritance. Death is an emotional time and often the sentimental value of an item can be blinding to a beneficiary. Part of a thoughtful estate plan should include planning for the personal effects.

All too often, a decedent may have expressed during their lifetime that they would like a certain person to have a certain item, but if it is not written down, that wish could get lost in the process of estate administration. Or, equally as regretful, it could cause strife among beneficiaries.

This is your reminder that if you have plans for your belongings, write those plans down and sign and date them at the very least, this can be referred to as a list of gifts. To the extent possible, have conversations with beneficiaries about your wishes to help provide understanding and avoid conflict after you are gone. And if feasible, consider giving items away during your lifetime. This can remove conflict and allow you to watch those you love enjoy the items. If the personal effects are significant in value, discuss possible tax implications with your tax advisor.

Lastly, your estate plan likely includes a bill of sale. This is a document which transfers your interests in personal property to your trust. The objective here is to avoid probate and ensure that any direction you may provide in your trust document related to your personal effects is applicable.

Remember Beneficiary Designations

Remember to change and update beneficiaries as life changes happen or at the creation of a trust if it is the intended beneficiary. Beneficiary designations usually apply to retirement accounts, life insurance policies and annuities; however, the TOD and POD designations mentioned previously are also examples of passing an asset by beneficiary designation.

Keep Clear Records

The last reminder I will leave you with is to keep clear records. When you are gone, the individuals or institutions you have chosen to administer your trust/estate will be grateful to have clear information. This can include information such as burial or cremation wishes, a list of your assets, the location of original documents that may be necessary for your estate administration like your Will, titles and deeds, paper stock certificates if you still have them, and possibly even original life insurance policies, among other things. This information can also include a list of professional contacts who have worked on your behalf like a tax preparer and attorney. It is also helpful to have a listing of your current estate planning documents. As we discuss here, it is appropriate and often necessary to revise your estate plan over your lifetime. It is important that the people involved in administering your estate/trust know which documents are the most current versions.

Many of us anxiously research estate planning attorneys, spend time thoughtfully laying out our intentions, and then exhale a sigh of relief as we put those documents in a file somewhere and assume we have done all we can or should. Pulling those documents out and reviewing them, on your own or with your network of professional advisors, is a prudent measure to ensure that your planning will play out as you intend. These periodic reviews also allow for new planning techniques as they become available.