5 Ways To Set Your Estate Plan Up For Success In The New Year

As we say goodbye to 2021, we take stock of the unprecedented year that passed. The hope of better times and a return to normalcy (in whatever form that may take) may propel us to evaluate much of our lives and see what areas could using some tending. One area that should come to the forefront is your estate plan. While it is not usually necessary to overhaul your estate plan each year, it should be reviewed periodically to ensure that each piece is doing what it’s supposed to. What better time to do that than the beginning of a new year? A thoughtful and well maintained estate plan is an integral part of setting yourself up for financial and personal success. It could also give your loved ones peace of mind during an otherwise difficult time.

Here are five practical ways you can ensure that your estate plan is on track:

1.     Take Inventory of Your Assets

It’s difficult to know if your estate plan is in order if you do not know the extent of your assets. This includes knowing how they are titled, whether they have beneficiary designations and if those designations have been elected and coordinated with your goals. A good place to start is to create an itemized spreadsheet outlining all assets you own, in your own name or jointly. You need to consider assets including each piece of real property, bank accounts, non-retirement investment accounts, business interests, retirement accounts, life insurance policies, annuities, and any other asset over with you have ownership or a power of appointment. Once that task is complete, you will have an overview of the assets that would be in your estate. The next step is to look at each asset and determine whether it would pass to a beneficiary (e.g. retirement accounts and insurance policies), by operation of law (e.g. real property owned by spouses or a joint bank account), or through your estate (most other assets you individually own without a named beneficiary).

2.     Review your Beneficiary Designations and Revise If Needed

Certain assets, such as life insurance policies and retirement accounts, including a 401(k), a 403(b), and an IRA, pass upon your death to the beneficiaries you designate, rather than pursuant to the terms of your Will (unless no beneficiary is identified on the asset). Accordingly, it is important to review all beneficiary designations to ensure that the assets will pass to the persons you intend them to pass and that they are coordinated with your estate planning goals. If you don’t have a copy of your beneficiary designation forms you can request them from your financial institution, or ask them to provide you with a change of beneficiary designation if you would like to designate different beneficiaries.

3.     Prepare or Update Your Last Will and Testament

Most people know that a Last Will and Testament (a “Will”) is the document that directs who receives your assets when you pass. A Will, however, can also be used to create trusts for your spouse or descendants, name the executor of your estate, name the guardian of your minor children, if any, appoint a funeral agent (in New Jersey), and help to implement tax saving measures, especially if the estate tax laws (or your net worth) have changed significantly since your Will was created. You can read more about Wills here. It is important to regularly review your Will to ensure that your wishes are still accurately reflected. If you have yet to make a Will, there is no better time than the present.

4.     Prepare or Update Your Health Care Proxy and Directive, and Power of Attorney

There is more to estate planning than preparing a Will. Having a current, updated Health Care Proxy and Health Care Directive (Living Will), and Power of Attorney are essential components of a comprehensive estate plan. A Health Care Proxy is a document in which a person (the “Principal”) appoints a person (the “Agent”) for the purpose of making medical treatment decisions if and when the Principal is unable to do so. A Health Care Directive gives the person you appointed guidance relating to your health care wishes. You can read more about Health Care Proxies and Health Care Directives here. A Power of Attorney is a legal document whereby a Principal grants an Agent the power to manage his, her or their financial affairs (you can read more about a Power of Attorney here).

It is important to review your appointments and wishes to ensure they align with your current goals. The beginning of a new year is a good time to put these documents in place if you have not already done so. If you are a New York resident, it is especially important to review your Power of Attorney as statutory changes to the form of Power of Attorney were enacted in June of 2021, as we discussed in our previous newsletter here.

5.     Consider Gifting or Creating a Trust

Estate planners thought the federal gift and estate tax exemption had reached its height in 2021 at $11.7M per person, especially after legislation proposing to significantly reduce the exemption made strides in Congress. It turned out, however, that new legislation was not enacted. 2022 brings in a new high to the federal gift and estate tax exemption at $12.06M per person. New York residents will also enjoy an increased state estate tax exemption of $6.11M. Additionally, the annual exclusion gift has been increased to $16,000, meaning that any person can gift up to $16,000 to any persons they wish without utilizing a portion of their lifetime estate tax exemption. If you are considering making gifts to take advantage of the historically high gift and estate tax exemption or to begin making annual gifts up to the annual exclusion amount, you should contact a well versed estate planning attorney who can assist you in creating a gifting plan in the most tax efficient way possible.

If you have estate planning documents in place, let the New Year be your reminder to review your documents to make sure that your wishes are accurately reflected and your goals clear. If you have yet to prepare your estate plan, there are practical steps you can take on your own to ensure that some assets will pass to the beneficiaries you intend. There is, however, no replacement for documents drafted by an attorney well-versed in Trusts and Estates law who can walk you through the process and identify considerations you may not be thinking of. No matter your stage in planning, the attorneys in our Trusts and Estates group are here to help.