Establishing an estate plan is a crucial step toward peace of mind. An estate plan typically includes the following documents: a Will, a Financial Power of Attorney, a Health Care Power of Attorney, and in many cases, a Revocable Living Trust. These documents help control your assets if you become disabled or pass away.
The best estate plans, however, are the ones that you review every three or four years. As you re-read your documents, I suggest you keep the following three questions in mind:
(1) Have your relationships changed?
In your Will or Living Trust, you name family, friends, charities, or advisors, as your beneficiaries and decision-makers. Your relationship with them may evolve. Here are common relationship changes that I hear about from clients:
“I first made my estate plan when my kids were in diapers. To my surprise, they have become responsible adults. I want to name them as my backup decision-makers in my Will and Power of Attorney.”
“I named my sister-in-law as guardian of my children. After seeing her babysit, I’m having second thoughts.”
“I’m now in a committed, long-term relationship. We aren’t married, but I want to make sure my partner is named as my beneficiary and decision-maker.”
“I’m pleased with my financial advisor’s work, and I want to name her firm’s trust division as successor trustee of my trust.”
“I’ve become very involved in a new charity and I want to include them in my estate.”
“My grandchild has special needs. I want to make sure I leave him an inheritance in the appropriate manner.”45rrr
“My son is going through a rough patch in his marriage. If I pass away, I want to make sure his inheritance is protected from a possible divorce.”
(2) Have the tax laws changed?
Tax laws change with some regularity, both on the federal level, and the state level. Here are a few of the biggest changes we’ve seen in only the last couple of years:
Effective 2020, Congress enacted the SECURE Act, which significantly limited the length of time many beneficiaries can stretch out retirement account distributions.
Effective 2021, the D.C. Council voted to reduce the estate tax exemption from about $5.6 million to $4 million. This exposes more people to estate taxation.
As we speak, Congress is considering a bill that would reduce the federal estate tax exemption from $11.7 million to about $5.8 million, effective in 2022, among other tax law changes.
(3) Have your assets changed?
As time progresses, your assets may increase, decrease, or change in some other way. You may buy a home, or a second home. Your investments may appreciate in value. You may incur more debt. Your business may thrive or flounder. You may inherit money. Here are common changes to assets that I hear about from clients:
“We bought a second home by the water. Should we own it in a Revocable Trust?”
“I bought a life insurance policy. How does that fit in with the rest of my estate plan?”
“My 401(k) has grown tremendously and I am rolling it over into an IRA. How can I coordinate this asset with my existing plans?”
“I inherited a fair amount of money from my parents. I want to make sure I account for it my Will.”
“My business has grown, and I want to plan for its succession. If something happens to me, I want to make sure someone has the authority to take over for me.”
“When I first wrote my will, the bank owned more of my house than I did. Now I’ve paid down my mortgage and my home’s value has skyrocketed. What can I do to mitigate the estate tax hit this might have on my family?”
If any of these questions apply to you, or if you have any other estate planning needs, please contact me at (240) 778-2331 or AFriedman@mcmillanmetro.com. I am an estate planning attorney in Maryland, Washington, D.C., and Northern Virginia.