For those of you that already have an Estate Plan of some kind (Will, Trust, Powers of Attorney, etc.), I bet these documents are collecting dust on the shelf and have not been looked at for months, if not years!
If you don’t have an Estate Plan, then you need to get one as soon as possible. If you do not have anything in place, your state has already decided what happens to your property if you die, and it is probably not what you would choose!
For those of you that have done some planning, life moves on and things change! Revisit your estate plan often (annually, at least) to ensure it meets your needs and does not produce unintended consequences. Consider updating…
1. When There Are Major Changes in the Law. A few of these changes include:
The Taxpayer Relief Act of 2012 (ATRA) significantly changed how estates are taxed. The estate tax exemption was increased to $5.49 Million per person, double for married couples (2017). A married couple can therefore leave nearly $11 Million to their loved ones without incurring any estate tax! Very few of us, therefore, are “burdened” with an estate tax problem but many created complex estate plans believing that we will have a large estate tax problem.
Trusts created before ATRA were designed for much lower Estate Tax exemption level, as low as $600,000, which did potentially affect many taxpayers. You may need to amend your Trust if it contains inflexible provisions for splitting your trust into various revocable and irrevocable parts that do not reflect current tax laws. These trusts are often called A/B Trusts or contain “Bypass Trust” provisions.
Failure to update your Trust in this case can create expensive administrative burdens and restrict access to assets for a surviving spouse. Imagine that your entire estate is $800,000 at your passing, and you expect all of these assets to be available to your surviving spouse to live on for the remaining years of life. Unfortunately, if you have one of these outdated and inflexible A/B Trusts (or similar) you may be restricting your surviving spouse to $400,000 of assets for the remainder of his or her life, while the other half of your assets are placed into an irrevocable trust that is not readily accessible to your spouse.
HIPAA (Healthcare Insurance Portability and Accountability Act) is a 2005 federal law protecting your private health care information. HIPAA should be reflected in your current estate planning documents. HIPAA language allows your appointed agents to have access to your medical information if you are incapacitated. Documents created prior to 2005 lack this HIPAA language and could restrict the ability of your loved ones from caring for you if you are incapacitated.
In recent years, Arizona has required a separate Mental Health Care Power of Attorney, independent of your general Health Care POA. Ensure your Health Care Power of Attorney includes specific Mental Health language or has been separately signed. This will avoid the need for your family to seek an expensive Guardianship through the courts in the event of certain mental incapacities or mental health crises.
2. When You Experience Significant Changes in Family Circumstances
A Marriage later in your life can have the unintended effect of disinheriting children from a prior relationship. Plan to set aside a portion of your assets for your children when you blend your family with another. An amendment to your Trust or Will can ensure this occurs.
The death of a spouse may trigger several administrative tasks that you may need to undertake. Consult an attorney when this occurs if you are not sure how to comply with the language of your estate planning documents and make the correct tax filings.
When a child suffers a divorce, you may need to update your estate plan.
When grandchildren are born, you may want to update your estate plan to provide for their education, health, or other needs.
If a child of yours suffers a disability or incapacity, you may need to change how that child receives their “inheritance” to ensure their ongoing care.
If a member of your family has or develops “special needs”, you need to be careful of how they receive an inheritance in order to maintain ongoing benefits necessary to their care.
Family conflict may prompt you to disinherit certain family members. You must make these changes in writing by amendment or codicil, or they will not be honored and your wishes not followed.
3. When you Experience Significant Changes to your Health
If your health or the health of your spouse is failing, ensure that your power of attorney documents are up-to-date; that they appoint a primary agent and at least one backup agent. Doing this can ensure that your family avoids an expensive guardianship and/or conservatorship court proceeding.
If you anticipate the need for long term care that may outlast your assets and savings, then consider asset protection strategies that will enable you to qualify for long-term-care benefits provided under Medicaid or the Veterans Administration, which you may otherwise not qualify for.
4. When You Experience Changes in Real Estate Ownership
Ensure that you title your real estate properly, taking care to select the right type of joint tenancy, community property, rights of survivorship, or tenants in common language that is appropriate when you own real estate with a spouse or another person.
If you have a Trust, it may be necessary to convey the new property into the trust. Before you buy real estate jointly with someone other than your spouse, consult an attorney first. It is often ill-advised to own real estate with a non-spouse as a joint tenant.
5. When You Experience Significant Changes in your Personal Finances
A serious decline in your finances may require asset protection and some technical planning that would qualify you for receiving government benefits in the future. Veterans benefits are also available for some that are in need of assisted-living care, but qualifying requires some specific planning.
A significant increase in your financial worth may require additional planning to avoid higher levels of taxation. Estate taxes are currently at 40%, once you surpass the exemption. Irrevocable trusts, gifting, and the use of limited partnerships (among other strategies) may be in order when your net worth has increased significantly.
6. When You Wish to Change Your Beneficiaries, Successor Trustees, or Appointed Representatives in your estate plan…
Please make these changes with the help of an attorney and DO NOT make hand-written changes to your documents. Hand-written changes will only complicate matters, can create conflict, or even invalidate what you have. Changes to your important documents should be prepared by an attorney and correctly signed, notarized and witnessed (when applicable).
When choosing an agent, power of attorney, successor trustee or personal representative, consider whether they are an appropriate choice. Do they have the time, geographical proximity, resources, education, patience, and capacity to fulfill the responsibility you are placing on them? You may want to consider a professional trustee or licensed fiduciary to fill these roles.
HP Law will always offer existing clients a complimentary annual estate plan review, and offers to new prospective clients a free initial consultation and estate plan review. We can be reached at 623-299-2722, or using the contact page at: www.hplawaz.com/contact-us/
Disclaimer: This guide is informational only, is not legal advice, and does not create an attorney-client relationship. If you wish to receive legal advice particular to your situation, you should consult directly and privately with an attorney licensed in your state of residence.