What Should Prompt an Estate Plan Review?

    How long has it been since you created your estate plan? Is it time to update your estate planning documents? New tax laws; a change in your health or that of a family member; the birth of a grandchild; a change in yours’s or a beneficiary’s marital status; a move to another state; or a falling out with your executor or family member; are among the plethora of events that could warrant an estate plan review. We’ll consider here why these changes (and others) are a reminder to keep your estate plans up to date.

     We often give little thought to naming beneficiaries to Retirement Plans (including, IRAs, 401ks, 403bs, among others). If we’re married, the default option is usually our spouse. However, for single people and widow(er)s the choice becomes more complicated. “Stretch IRAs” have been key tools used via Retirement Plan transfers to preserve and grow wealth across generations. However, the provisions of the Secure Act (SA), which became law on December 19, 2019, severely limited the use of Stretch IRAs. Prior to the passage of the SA, non-spouse beneficiaries could “stretch” inherited distribution of funds from Retirement Plans over their lifetimes.

     By using Government provided life-expectancy tables, a relatively young beneficiary could effectively preserve tax-deferred growth of the deceased person’s retirement plan for many decades, while only having to take nominal distributions. However, for IRAs inherited from original owners who have passed away on or after January 1, 2020, the new law requires many beneficiaries to withdraw all assets from an inherited IRA or 401 (k) plan within 10 years following the death of the account holder. 

     Exceptions to this “10-year requirement” include the spouse of the original owner, minor children of the original owner (not grandchildren), disabled and chronically ill individuals as defined by the IRS, and someone less than 10 years younger than the original owner. The individuals who qualify for these exceptions are called Eligible Designated Beneficiaries (ECBs). The 10-year period for your minor children begin once the child reaches the age of majority. In general, if you are an ECB and therefore continue to be eligible to “stretch” your distributions, then do it to maximize tax deferral.

     If your beneficiary does not quality as an ECB, needs the money to live on immediately, and expects their tax status to remain the same, it’s generally advantageous to take the money over 10 years in relatively equal payments each of the ten years. This will smooth the tax impact of the distributions by avoiding bumping the beneficiary into a higher tax bracket. 

     If you are the owner or inheritor of an IRA or other qualified retirement plan, you should consider how the SECURE Act may impact your retirement accounts along with your beneficiaries and reevaluate your estate planning, and gifting strategies.

     What if your beneficiaries’ circumstances have changed? Are some doing far better financially than others? How do you feel about unequal bequests based on need? If unequal bequests are something you’re considering, let beneficiaries know the reason for your decision. Otherwise, misunderstandings and bruised feelings can last decades beyond your demise.

     Has your marital status (or that of any of your beneficiaries) about to change? Perhaps you don’t want your bequests to become part of a divorce settlement, with half going to an ex-spouse you were never partial to. Certain kinds of trusts can deal with situations like this. Speaking of relatives, do you have beneficiaries with special changes? Do you now have any beneficiaries with “special needs”? This may require that you set up a Special Needs Trust to allow them access to a bequest from you without disqualifying them from Government assistance. Perhaps other beneficiaries have developed profligate spending for addiction problems. “Incentive trusts” could be a way to provide support for them in a way that doesn’t undermine their recovery.

     Do you own real estate in multiple states? Each state jealously guards its right to transfer property. So, without proper estate plan devices in place, your estate could face ancillary probate in another state (or states) with the attendant probate costs and fees involved. So, discuss how to adjust your plans with your Elder Law attorney if this situation applies to you.

     Has your or your partner’s health deteriorated to a degree that long-term care may be on the horizon? If so, it’s a good idea to discuss this with your Elder Law Attorney. There may be opportunities to transfer assets or change assets’ ownership to shield them from long-term care expenses. In this dynamically changing area of the law your Elder Law Attorney guidance can be priceless. Elder law attorneys know estate planning as well as how to protecting assets from long-term care expenses.

     If your estate plan includes trusts, it may also require updating considering tax law and regulatory changes. Even if your trusts continue to serve their original purposes, certain provisions of trusts may also need modifying to comply with changing legal and/or regulatory environments either at the state or federal level. 

     The takeaway from this discussion is that many things can prompt an estate plan update. Some are more apparent than others. Even if you think nothing has occurred in your life or that or your beneficiaries to warrant a plan review, it’s good practice to reach out to your Elder Law attorney to discuss issues you may have overlooked. Your family and your beneficiaries will thank you for it.

     The best way to access a competent and experienced Elder Law attorney is through their professional website: www.naela.org. Once at the website, simply go to the consumer section and use their tool (which is zip code driven) to access a list of Elder Law attorneys is your area. Bring your partner or a trusted friend to the meeting. I’d recommend interviewing at least 3. Find one who’s a good communicator and don’t forget to get a price for the plan.

     Typically, each person should have 4 documents: an up to date will, a durable power of attorney, an advance directive for health care, and a living will. It’s a good idea to ask for a free one-hour consultation. To prepare for this initial meeting, assemble your net worth statement, and ask 2 or 3 questions you’d like the attorney to address. Be aware that expensive Living Trusts can be oversold, so if one’s recommended early in the discussion, ask if there’s a less expensive way to create your plan.

    After your plan’s created, don’t forget to contact your attorney to update your plan as your life circumstances and laws change. At a minimum, reach out to your Elder Law attorney every 3 years.





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