Prepare yourself to be shocked: 2018 is almost over.
If you’re like me, you’re looking forward to a few weeks of Christmas carols, football, family, bowl games, presents, and (best of all) football.
This is also a great time to look back on the year that was:
Perhaps you started a new job or got a raise; maybe you made an addition (by birth or marriage) or subtraction (by death or divorce) to the family; or maybe you purchased a house, received a windfall inheritance, or started a new business.
Life can change a lot in a year.
But do those life changes mean you need to make changes to your estate plan?
To help you answer that question, we have put together a 10-question checklist to review your estate plan. You can also download a FREE printable version of the checklist by clicking below.
1. Does your plan take new tax laws into account?
The 2017 Tax Cuts and Jobs Act dramatically affected our tax laws. Forbes even called it "the most comprehensive overhaul of the tax law in 31 years."
Included in that overhaul were major changes to individual income taxes, deductions, business taxes, and estate taxes — all of which can dramatically impact your estate plan.
The IRS recently announced further changes to the estate tax and gift tax exemptions for 2019.
If you have not spoken with an estate planning attorney (and a financial adviser, for that matter) since the new tax laws came into effect, we strongly recommend doing so.
2. Do you want to change fiduciaries?
Review your core estate planning documents such as your:
Living trust (What is a Trust?)
Last Will and Testament (What is a Last Will and Testament?)
Durable Power of Attorney (What is a Power of Attorney?)
Advance Directive for Health Care (What is an Advance Directive?)
All these documents name representatives (or "fiduciaries") to make decisions for you if you cannot make them yourself.
Do you still trust these people to serve your best interests? Have your children become adults and, if so, would you like to appoint them as your representatives or alternates?
Have any of your representatives encountered financial difficulties, and you are no longer confident in their ability to manage your estate?
If you have multiple children but only one is named as an executor/trustee, you may also want to consider naming your other children as co-executors or co-trustees to avoid disputes over your estate plan.
3. Do you want to change beneficiaries?
Does your Will or Trust accurately reflect who you want to inherit your estate?
Even if your estate plan has the right beneficiaries, remember this: not only can you decide who gets your assets, you can also decide how they get it.
Would you want to leave your entire estate to an 18-year-old child? Do they have experience managing $1 million? $100,000? Even $10,000?
To help preserve your estate (and to teach your children the value of money), you may wish to split up the inheritance into more manageable portions or make it available only for certain life events such as buying a house, buying a car, or going on a honeymoon.
Many clients like to divvy up the inheritance over time, giving beneficiaries a third when they turn 21, another third at 30, and the rest at 35.
Alternatively, you can authorize the trustee to match your beneficiaries’ W2 each year, up to a maximum annual amount (e.g., $25,000). You could also require your beneficiaries to submit to drug tests, to be in school, etc.
In short, there is a nearly infinite number of options for how you can distribute your estate. Your estate plan is more than just a means to financially provide for your loved ones; you can also use it to encourage them to better themselves.
4. Are your beneficiary designations up to date?
It is also important to make sure assets with beneficiary designations (such as retirement accounts, joint tenancy ownership, insurance policies, etc.) match your estate plan.
Some people think that when they execute a Will or Trust, that document alone controls where their "stuff" will go. But that is not always the case.
Beneficiary designations are a great way to avoid probate, but they can override the provisions of your estate plan.
Suppose your Trust says your son John will receive your entire estate, and you want to disinherit your other son, David. If your insurance policy still lists David as a beneficiary, he will still receive part of your estate.
Similarly, divorce or separation can impact your estate plan. A divorce decree does not always automatically revoke designations where you have named your now-former spouse as beneficiary.
Therefore, it is crucial that you review your beneficiary designations with each institution or policy to ensure that the beneficiaries listed are the people you want to receive those assets.
5. Is your trust fully funded?
One of the biggest differences between a Will and a Trust is that assets owned by a trust can avoid probate, saving both time and money. So, you need to ask yourself an important question:
Are my assets owned by my living trust?
Re-titling assets into the name of your trust — a process known as "funding" your trust — is what makes a trust effective. If your trust is not fully funded, your estate may still have to go through probate.
But be careful and make sure you have authority to transfer the asset in the first place.
Suppose, for example, that your car is owned by your family business. If you are not the sole manager and member of that business, you may not be able to dispose of the car through estate planning documents.
6. Do you have a digital estate plan?
With the popularity of Facebook, e-mail, cryptocurrencies, and other websites, you should include digital assets in your estate plan to enable your representatives to access and/or dispose of your online accounts after your death.
Luckily for you, we have put together a quick-and-easy guide to help you create your own digital estate plan for FREE.
However, laws regarding the disposition of digital assets vary by state, so you should talk with a qualified estate planning attorney before making a digital estate plan.
7. How old is your Durable Power of Attorney?
A Durable Power of Attorney is one of the most important estate planning documents you can have. After all, it is a document that affects you during your lifetime.
Your Durable Power of Attorney does not "go bad,” and it stays in effect unless and until you revoke it. However, healthcare providers are sometimes skeptical of a power of attorney that is more than a few years old.
From the healthcare provider's perspective, how do they know the power of attorney has not been revoked in the years since it was executed? How do they know there isn't a newer one that names a different representative?
To avoid trouble — and to make sure your documents work when you need them — we recommend updating your Durable Power of Attorney every few years.
8. Are your assets titled properly?
Whether or not you have a trust, you should review title to all your assets. Any assets owned in joint tenancy, for example, may not go to the person you want to have them:
Let's say you own a house in joint tenancy with your brother, but your Will says you want your son to have it. When you die, the surviving joint tenant — your brother, not your son — would inherit your interest in the property.
Harmonizing your beneficiary designations, property titles, and estate planning documents can help your estate avoid costly lawsuits after your death.
9. Where is your estate tax domicile?
Whether you owe an estate tax depends on your "domicile." Contrary to popular belief, your domicile is not necessarily the same place as your residence.
If you spend a substantial amount of time in more than one state, your domicile may not be where you think. States will take into account factors such as:
The length of time you were located in the state
Where your real estate was located
Where you were registered to vote
Where you paid taxes
Where you conducted most of your business
And many other factors
You want your domicile, for estate tax purposes, to be in a state such as Oklahoma that does not have a separate estate tax (although you may still have to pay the federal estate tax, if you are over the estate tax exemption amount).
If your domicile is uncertain, talk with a tax professional about steps you can take to help you avoid state-imposed estate taxes. Depending on your state, you may also need to consider how your heirs and beneficiaries will be affected by inheritances taxes.
10. Is your letter of instruction up to date?
Managing an estate is a tough job. If you died today, would your Successor Trustee or other representatives even know where to start?
Where is the key to your safe-deposit box? Where are your car titles? What is the combination to the floor safe? Where is the abstract of title to your home? What are the passwords to your computer and other online accounts?
An estate planning letter of instruction is meant to help guide your representatives through administering your estate after your death. Imagine that you could stand over the shoulders of your spouse or children or other loved ones and tell them exactly what needs to be done.
Very likely, your representative will be going through a tremendous amount of stress and grieving. But you can ease their burden by leaving step-by-step instructions to help them through the process.
We also encourage clients to conduct an estate planning “fire drill.” Pretend you have died, and walk your family through the process of what they must do to set your affairs in order.
By organizing your estate plan and going through regular “fire drills,” you can make things that much easier on your family after you are gone.
Review your estate plan with an experienced attorney
Estate planning can be a complex and confusing subject. You may review this checklist and still be unsure whether you need to make any changes to your estate plan.
We can help with that.
To review your estate plan with qualified counsel, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.
David M. Postic is an associate attorney at Postic & Bates, P.C. His practice includes estate planning, probate, real estate, adoption, business law, and litigation.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]