Saturday, October 17, 2015

The year-end estate plan review


It’s like cleaning the basement for a yard sale — you don’t want to do it, but it feels great when it’s done.
I’m talking about a year-end estate planning review. There is no better time to do an estate planning review than December — now just a few weeks away.

A year can bring significant changes. For example, you could have had a job change, moved to a new state, received an inheritance, had a marriage, birth or death in the family, and started, bought or sold a company. Consider the annual review like regular car maintenance. Without it, you could find yourself in trouble at the worst possible time.

A current estate plan is essential for the preservation, management, and transfer of your wealth for tax and nontax reasons. It should include a full risk management review from how assets are owned or titled, to the type of insurance coverage and amounts you have. For example, you could have purchased a boat earlier this year, but forgot to update your insurance coverage to include it.

The first step is a review of your documents including wills, revocable and irrevocable trusts, power of attorney, health care powers of attorney, advanced directives, letters of direction, and life, property and disability insurance policies.

Review your documents

It sounds obvious, but individuals frequently neglect a document review for years at a time. Read them once a year to make sure they reflect your objectives. Questions you might ask include:

• Are there changes to the family structure this past year?
• Are you and your partner now married? Divorced?
• Are you reconsidering how you want your assets distributed?
• Have you changed your state of residence?
• Are your beneficiaries capable of managing a financial windfall on their own?
• Have you discussed your estate plan with your family?
• Does your family have adequate financial protection in case of death or disability?

Review your fiduciaries

For example:

• Are all fiduciary roles (executor, guardian, trustee, agent) filled by individuals who have the time, willingness and ability to serve in this capacity?
• Do the fiduciaries understand their roles and responsibilities?
• Would a corporate executor and/or trustee be appropriate as part of your fiduciary team?

Review for potential tax issues

At the federal level, there is an estate tax and generation-skipping transfer tax that can drain as much as 80 percent of your estate at death.  Income taxes can further erode your estate for assets, such as a 401(k)and individual retirement accounts, which may require planning. Planning for taxes is important.

• Have your assets increased so that federal and state tax planning may be needed?
• Does a decrease in assets call for a change in bequests, tax planning or distributions?
• Have you purchased real estate in another state?
• Are your assets titled appropriately to work with your estate plan?
• Are the beneficiary designations on assets like life insurance and individual retirement accounts current and working properly with your estate plan?
• Have you started, acquired or sold a business?
• Have you received an inheritance or expect one in the near future?
• Do you own your assets in a manner that maximizes asset protection opportunities?

It doesn’t have to be in December, but once a year, block out a few hours to review your estate plan. Your family will benefit from a well-maintained and up-to-date plan.

Plus, it gets you out of cleaning the basement, at least for a little while.