Estate Plans are Plans, Plans are Subject to Change

IS YOUR ESTATE PLAN UP TO DATE?  An estate plan is an investment you make for your self, your family and your future. It provides for your intentions as they existed when you met with the attorney who drafted the plan for you. However, families, finances, laws and minds change. Take this simple test to see if your estate plan is up to date.

1. Have you prepared a will or a trust?

Without proactive planning, you are relying on the California legislature to determine how your assets pass, to whom they pass, and when they pass. In addition to having potentially undesired results, this is perhaps the most costly and time consuming means of passing your assets to your loved ones.

If you have prepared a trust, have you funded that trust?? Retitling assets into the name of your trust is essential to preventing your estate from passing through probate. See #3, below for more information.

2. If you have done a will or trust, has it been reviewed in the last few years? 

Have there been changes in your personal, family or financial situation? Are you still in close contact with the individuals you named to serve as agent, trustee, health care agent, etc.? What about the people you named to serve as guardian for minor children? Are they still in good health and a part of the children's lives?  Do you have significantly more net worth or less net worth? Have you acquired assets that are not yet titled in trust?

Even assuming that there have been no changes in your family or finances since your plan was last reviewed, there have been major tax law changes in 1997 and in 2001. An out-of-date estate plan is sometimes worse than no estate plan at all. Our experience is that people view estate planning as an event rather than a process. Keeping your plan current is vital to achieving the goals you set out to accomplish.

3.  Are you absolutely certain that your assets will not be subject to probate? 

We encourage you to make a list of each asset you own and identify how each asset is going to avoid probate. Assets owned as "joint tenants with rights of survivorship," assets owned in the name of a trust, and assets that pass by beneficiary designation (such as IRAs, life insurance, etc.) are likely to avoid probate. Everything else is subject to probate. (Also, note that assets owned jointly are typically subject to probate upon the death of the last joint tenant.) Probates can be costly and typically take 12-18 months from the date of death to conclude. For more information on just how costly, click here.

4.  Have you reviewed beneficiary designations on your retirement accounts?

In the past, only a surviving spouse could roll over a qualified plan (for example, a 401(k)) to an IRA after a plan participant / owner’s death. Once rolled over, it is as if the surviving spouse created the IRA – he or she can defer required minimum distributions from the IRA until reaching age 70 12 and can withdraw these required minimum distributions over his or her lifetime. Effective January 1, 2007, a non-spouse beneficiary can roll over a qualified plan to an “Inherited IRA” after the plan participant’s death. With an Inherited IRA, a non-spouse beneficiary can use his or her own life expectancy to determine required minimum distributions. This significantly reduces the amount that the beneficiary must withdraw each year, thereby deferring income tax and allowing the account balance to continue to grow, income tax free, over the beneficiary’s lifetime. Naming a trust is still a viable alternative. Naming a trust as designated beneficiary can protect the assets from creditors (including former spouses of the beneficiary) and spendthrift beneficiaries, who often withdraw far more than the required minimum distributions. 

5.  Are all of your heirs over the age of 18 and financially responsible?

Under California law, children inherit property no later than age 18 without restriction. Proper planning is crucial to prevent an heir from squandering his or her inheritance, or worse, from causing harm to himself or herself. If your children were minors when you created your estate plan and now they are married with children, it may be time to revisit the planning process. Your perspective on their ability to inherit may have changed, and options may be available that you did not consider when you first planned your estate (see Question 6, below). A child may have gone down a different path than you thought they would, encountered problems with addiction, or developed a disability which would require special planning. Or, they might be financially secure and you might prefer to provide for the next generation or make a larger charitable gift than you had been planning previously.

6. Do you have assets titled jointly with a child or children, or someone else? 

Holding assets jointly with someone other than a spouse is quite common, but has some potentially devastating consequences of which most people are unaware. The California Supreme Court says that a creditor of a joint tenant can take the entire asset to satisfy the creditor's claim. A creditor would include a divorcing spouse, judgment creditor, or business creditor. Additionally, problems can be created if joint tenants die in the wrong order.

7. Does your current plan provide your heirs with asset protection, divorce protection, and lawsuit protection? 

Many plans that I review do not protect inheritors from the possibility of divorce or lawsuits. The most common means of providing for heirs is with outright distributions whether all at once or in stages. By doing so, however, the inheritance becomes subject to the creditors of your heirs. If you have planned for outright distributions to your children, you might consider lifetime trusts that give them control while providing protection from divorce, creditors and lawuits.

8. Are you still married to the person you were married to when you created your estate plan?

If not, chances are you will want to name someone else to serve as trustee and agent, and to make your health care decisions. In addition, you might want to leave your assets to someone else.

9.  Is this your first marriage? 

Second or subsequent marriages present unique planning issues, particularly if both spouses have children from a prior marriage. Proper planning is critical to prevent undesired results. If you were married to someone else when you last reviewed your estate planning documents, it is definitely time to revisit the planning process. Your current spouse or significant other may be a better choice for making end-of-life decisions on your behalf than an ex-spouse. Also, if you have had children with a new spouse or partner, it is recommended that your estate plan be updated to reflect the new children and plan for everyone.  

10.  Do you have peace of mind about how your estate plan will work? 

If not, NOW is the time to resolve your questions and concerns. An estate plan is all about peace of mind. Your peace of mind that things will function smoothly, and according to your wishes. And the peace of mind of the next generation. If you have named co-trustees or co-agents, do they still get along and will they work well together?  Is there someone else you'd rather see taking care of your medical and financial needs? 

If you answered "No" to any of the above questions or "Yes" to #5, you should call my office at 650.863.4599 to make an appointment to address the changes in your life by updating your estate plan.