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If you’ve already created an estate plan, it’s likely just tucked away somewhere in a big binder, and you probably haven’t looked at it since signing the documents. If that’s the case, don’t worry—that’s how it is for most people. But maybe it’s time to dust off those binders.
If it’s been a number of years since you created the plan, it’s a good idea to review why you drew up the documents, which files should be updated, and some other housekeeping items to keep in mind.
Estate Planning: A Quick Review
Estate plans are created to prepare your family’s care for you and your estate under two circumstances: periods of incapacity or at death. While most people are mainly concerned with how to pass assets after death, something that’s often overlooked is how you can grant your loved ones the ability to manage your affairs during your lifetime, in the event you become disabled or incapacitated.
A sound estate plan prepares for these events through a will, trust, durable power of attorney, and advanced health care directives. The people you name and empower to manage your affairs are called fiduciaries, while those you name to receive assets after you pass are called beneficiaries.
When Should I Review My Estate Plan?
The general rule of thumb for an estate plan review is every 3 to 5 years, but the best practice is to review your documents upon specific life events or changes in laws. This can include:
- Either spouse is suffering from illness, disability, or otherwise deteriorating health.
- A recent marriage, domestic partnership, or cohabitation shifts family responsibilities.
- Children or grandchildren have reach adulthood.
- The adoption or birth of a new child or grandchild.
- The death of a spouse, child, grandchild, or someone else named in your documents.
- A change in asset mix, such as selling a house or buying a house or receiving inheritance.
- Retiring from your job.
- Someone you named has developed a special need or issue with addiction.
- You or someone you named has moved out of state.
- You’ve renewed a relationship with someone you disinherited or you need to consider disinheriting someone currently named in your documents.
- You’ve started a business or changed careers.
- Your goals for your assets have changed, such as become more specific in regards to providing for educational funding for grandchildren, compared to simply passing directly to children.
- An increase or decrease in federal or state income taxes, capital gains taxes, or inheritance taxes.
What Should I Review in My Estate Plan?
A key item to review is the names of the people you entrusted to manage your affairs.
One common example involves someone who names their parents or siblings in the fiduciary roles when their own children are still young. After several decades, it’s possible their parents or siblings are no longer ideal in those roles and their adult children become able and willing to take on those roles instead.
Next, you should be looking at the people named to receive your assets, and the manners in which you’ll be passing your assets to them.
Did your pass your assets equally to your children, or did you give particular assets—such as a house or jewelry—to particular children? Do you now have grandchildren and want to leave some assets to them? Did you allow your children to receive assets only at a particular age which now needs to be raised or lowered?
Understanding the “who” and “how” is important to ensure your family dynamic remains intact, and that your assets don’t cause infighting and turbulence after you pass.
Last but not least, the most important item to review is the title of assets and the beneficiaries named on accounts.
Because these aren’t in the actual documents, they’re often overlooked by clients and neglected by attorneys. Reviewing them, however, ensures that the assets you meant to place in the trust are in the trust, and the people you meant to receive your assets will, indeed, receive them.
Frequently (and by that, we mean on a regular basis), we find that clients will list assets in the “Schedule of Assets” at the end of the trust without changing the property title or the account title to place the asset in the trust. To ensure your trust is “funded” and that the assets are included in the trust, it’s imperative to file property deeds or other paperwork necessary to title assets in the name of the trust.
Additionally, you’ll want to make sure that assets that aren’t usually in the trust—because they pass via a named beneficiary—list the correct beneficiary. These assets can include life insurance, retirement accounts, annuities, and some pensions.
Common Mistakes in Estate Planning (and How to Avoid Them)
- A married couple holding real estate, titled as tenants in common or joint tenants—instead of as community property with right of survivorship. This is a VERY common mistake, especially if you’ve refinanced your home. This can be corrected by filing a new deed stating community property and, if you have one, adding the property to your trust.
- A married couple, widower, or individual with a trust who has not titled the property in the name of the trust. This is also common as in the past, attorneys didn’t always file the deed on behalf of their clients, as many do now. Again, this is also something that can happen accidentally when refinancing a home, as the house is frequently removed from the trust to process the refinance and then never returned to the trust. This can be corrected by filing a new deed.
- Couples and individuals holding bank or brokerage accounts in their name only. Many people assume that a spouse can automatically inherit a separate account of their spouse if they pass. This is generally NOT the case as it is with a joint account. Even with joint accounts, there’s a question of what happens to the account when the surviving spouse takes the account, but later passes away. This can be corrected by naming a beneficiary on the account (commonly known to banks as “Transfer on Death” or “Payable on Death”), or you may retitle accounts in the name of your trust.
- The beneficiary of an account has passed away or is no longer someone who should be named, such as a former spouse. This can be corrected simply by updating the beneficiary form to an appropriate name. You may also name your trust.
- Parents naming their (or their sibling’s) minor children as beneficiaries on accounts. This may not be an issue for a small bank account, but for a large retirement account or life insurance policy, this may cause major problems if you pass away and your child, niece or nephew receive substantial assets upon turning 18 years old. To correct this and still provide funds specifically for minors, consider creating a trust to name as a beneficiary that can hold assets until children reach a particular age, and to be managed by guardians and trustees.
- Trusts that state “equal distribution to my children” but the parents have numerous tangible items, such as jewelry, art, firearms, or military medals that the children could fight over. To correct this, consider giving away assets in life, documenting specific instructions for specific items, or amending your trust to clearly detail who will receive items you believe may cause a conflict. When kids fight, it’s usually over “the stuff,” which includes family heirlooms and jewelry in most cases.
Need Help Planning Your Estate?
At Capital Growth, we’re focused on multi-generational wealth management. A key aspect of this is reviewing your estate plan with your financial advisor. This ensures your wealth will continue to benefit you and your family years into the future, and according to all your specifications.
Speaking with you and your children to tighten your estate plan helps ensure your family can focus on care without disruption to your estate should you become incapacitated. When someone passes, our goal is that the family will have time to grieve and not have to worry about your wealth being mismanaged, causing conflicts or ending up in the probate courts.
To learn more about creating and reviewing your estate plan, join us for our expert webinar on June 8th, 2022 at 1 p.m. and 6:30 p.m. Register for the webinar
Get your estate plan reviewed by a professional. Talk to a Capital Growth advisor today and we’ll make sure everything’s up to date.