Avoid probate and audit an estate plan regularly

Getting your estate plan in place is never a “one and done” task. Estate planning is an ongoing process and should be viewed that way.

Why? Because life changes, families change and the law changes.

Every 3 to 5 years

A general guideline is to be sure to look at your estate planning documents at least every three to five years. A lot can happen in that time frame, and it’s worth noting, we have national elections every four years that seem to affect the estate tax laws as well. So, what should you be looking for?Who Have You Named?

An important part of estate planning is naming the parties who will serve in various roles when you’re not able to — a successor trustee, an executor, a power of attorney, and a health care agent. Are the people you named still the people you’d chose? Have they moved away? Passed away? Are they still able and willing to serve in the capacity in which you named them? Are there better options now?

Did you name guardians for your minor children? If your children are still minors, are those still the people you’d choose?

Is your trust current with today’s laws?

I still see a lot of trusts for non-taxable estates of long-married couples with the provision requiring a division of the trust into two shares at the first death. We used to do this for estate tax purposes — in short so that both spouses’ estate tax exemptions were utilized. But, in 2011, the law changed, and we now have the ability for the surviving spouse to preserve the deceased spouse’s estate tax exemption for later use without the cost and trouble of dividing the assets into two separate trusts.

There still may be reasons for the two (or sometimes three) trust split–children from different marriages, different beneficiaries, separate property, and/or a large estate — but it’s best to have your trust reviewed by your attorney to determine if the formula in your trust still works for your situation. I have yet to meet with a surviving spouse who was happy to learn they now needed to appraise all of their assets and divide them by two.

Does your trust say what you want?

Sometimes trusts are drafted under one set of circumstances, things get better (or worse), and the trust never gets updated. You may have left your assets outright to your beneficiaries at your death, and now one has a substance abuse problem, or one is getting a divorce, or you saw how they handled an inheritance from their other parent or a grandparent, and “outright” doesn’t seem like such a good idea anymore.

The reverse could be true as well—you left your beneficiary’s share in a trust until he or she was 35 or maybe older. But now that same beneficiary is a mature, responsible adult with young children of their own. Is a trust still necessary?

Again, there can be many reasons for leaving a beneficiary’s share in trust (maintaining separate property status, asset protection, estate tax planning, maturity, and other issues). Just be sure to check from time to time that your trust is meeting your current goals and circumstances.

Are beneficiary designations current?

Annuities, Life insurance, IRAs, and retirement plans are controlled by beneficiary designations. That means no matter what you’ve said in your will or trust, those assets will be distributed to the person(s) named on your beneficiary designation form. And I’ve seen this go wrong too many times.

I’m currently working with the trustee and executor of an estate that will encounter unnecessary probate. The husband passed away years ago. At the time of the husband’s death, the financial planner had the wife roll over her husband’s IRA to her own IRA. The financial planner did not, however, have the wife complete a new beneficiary designation form.

The wife’s existing beneficiary designation form (from 15 years ago) named only her now-deceased husband as the beneficiary. No contingent beneficiary was named, and no new form was completed.

As a result, when the wife died, the “default beneficiary” of the IRA, with over a half-million dollars in it, is “the estate.” That means the IRA has to go through costly and time-consuming probate only to wind up in the living trust by virtue of the pour-over will (a will that says “I leave everything to my trust”). One updated form could have saved over $20,000 in legal and executor fees.

Similarly, I’ve seen beneficiary designations with ex-spouses still named, the first child born named but not the subsequent children, and all too often, a mom named a decade or more before the insured got married. (Moms are named far more often than dads—don’t ask me why.) And I’ve seen beneficiary forms get lost by the institution that is supposed to maintain them, and forms never completed, or worse, completed but never delivered to the financial institution. A simple review of documents would have prevented a lot of lost time and money for the heirs.

Worth the time

I know it’s tempting to pat yourself on the back for getting your estate planning done and then sticking the binder full of documents in a drawer somewhere and forgetting about it. Just remember to pull that binder out every few years and check in with your attorney. Time changes everything.

Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her at Teresa@trlawgroup.net

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