When was the last time you sat down and mapped out your estate? For some, it has probably been many years. Individuals usually do a flurry of estate planning around an event - a child is born, a spouse passes away, even planning a big vacation might be the trigger one needs to put a plan in place. All of this frantic activity ends with a stack of fresh legal documents: Wills, Trusts, Powers of Attorney and Health Care Proxies (or Living Wills). The plan is complete and into the filing cabinet it goes. What year was that? Oh why not, I'll be a good sport and pick on myself - 2005. Will the documents still work? Sure. But is what I wanted in 2005 still what I want today? Well, for starters, my son is now 21. My mother has also passed away, so that Trust that I created with my life insurance to make sure she was cared for probably does not make much sense anymore. Certainly, I changed the life insurance beneficiary ... didn't I? It wouldn't hurt to double check.
Even if you have done a better job than me keeping your plan up to date, there is another reason why doing a review this year is important. As a reminder, for the years 2011 and 2012, the dollar value that one can remove from their estate for the lifetime exclusion was raised to $5,000,000 (actually $5,120,000 for 2012 due to an inflation adjustment). This two-year bump is set to expire at the end of 2012 and the exclusion reverts back to $1,000,000. The highest estate tax rate is also scheduled to increase from 35% to 55%. Will it? Who really knows what Congress will do, but for those with larger estates, waiting until the spring of 2013 to dust off your estate plan may be a costly mistake.
So, if we all agree that a little housekeeping is in order, where do you start?
Instead of digging out the old documents and reading them first, I suggest you start with a blank piece of paper.
Step 1: What do you own?
Create a balance sheet. But when doing so, break the balance sheet into sections based upon the type of asset (property, non-retirement, retirement, etc.) and how it is titled. Why? Because title and beneficiary designation can take precedence over the Will. Jointly-titled assets will pass to the surviving joint owner, for example. Retirement plans and life insurance policies can be transferred by naming a beneficiary. A Trust includes provisions as to its disposition at the death of the current beneficiary. Put all the assets that are titled in your sole name and have no beneficiary into their own section. These assets are passed by the Will. Don't forget to create a section labeled Life Insurance and also to take into consideration any outstanding debts.
Step 2: If something were to happen to you today, to whom would you want these assets to go or to whom would you want these assets to benefit?
If your assets are jointly owned with your spouse/partner, and you are each other's sole beneficiary, you still have some work to do. Should something happen to both of you, how would you answer the question at Step 2.
Step 3: Read Your Current Documents (Wills, Trusts, Powers of Attorney, Health Care POA and Beneficiary Designations).
For those assets that are not passed by title or beneficiary designation, does your current Will still meet your desires? Is the Trust you created still appropriate? Do you need a Trust today to hold, invest and protect assets for a child or a surviving spouse? Are your beneficiary designations and account titles correct? Is the executor you named years ago still able to serve in that capacity? The same question should be asked of anyone you named as a Trustee or Power holder. Are there charitable causes that you would like to benefit?
Step 4: Identify the Problems and Update the Documents Accordingly.
Compare the results of Steps 1, 2 and 3. In Step 1, you identified your assets and how they would pass by title and beneficiary designation. You also identified what assets might need to be directed by a Will. In Step 2, you determined who should receive what asset and when. In Step 3, you reminded yourself of what actually could happen to those assets that are distributed based on the Will. You also reminded yourself of the individuals that you have given responsibilities too: Executors, Trustees, Guardians. How closely does the current situation match what you would like to happen today?
In many cases, this exercise can help you identify and update your plan to include some assets or accounts that have been overlooked or did not even exist the last time you reviewed your estate plan. It might even prompt you to have a conversation with your children about your wishes or with your Executor or Trustee. In some instances, this exercise will help you to be more prepared when you call your attorney. And at the very least, you will have a much clearer understanding of where things stand today and what actions are needed to get your estate plan back in order.