Because life brings many changes, you should have an estate plan checkup at least every three years.
After you’ve met with an attorney to do your first Will, it is easy to assume that you have checked estate planning off of your to do list forever. The reality is not so simple. Not only do tax laws frequently change, but so does your life. The smallest change could have a big impact on your estate plan. That’s why it’s a good idea to go through an estate plan checkup at least every three years to ensure your estate plan still accurately reflects your values, needs, and hopes for your legacy.
Even if you have already created an estate plan you feel confident about, circumstances surrounding your decisions may change. Marriages end, children grow up, and serious illnesses occur. When laws change, some estate planning techniques can become outdated.
An estate plan checkup should include a look at how your accounts and property are titled to see if any changes are necessary. Joint ownership of your property, for example, may be a good idea or a bad idea, depending on the circumstances. Births or deaths of loved ones may lead you to change your beneficiaries. The person you named as one of your trusted decision-makers (for example, a trustee, executor, agent under a financial power of attorney, or agent under a medical power of attorney) may no longer be the best option due to relationship changes or physical relocation. Such changes can occur without your thinking of the effect they have on your estate plan, so it is worth a periodic estate plan checkup to make sure your your plan still reflects your wishes.
Significant financial change can also be a good reason for an estate plan checkup. If you have taken on a new job, bought a house, or made new investments, you will want your estate plan to reflect these changes. If you have a trust, the only way to ensure that your accounts and property are kept out of probate is to have all of your accounts and property appropriately funded into the trust or naming the trust as beneficiary.
Changes in the laws affecting how assets are left to beneficiaries seem to be happening with more and more frequency. For example, the recent SECURE Act and the elimination of the lifetime stretch for nonspouse beneficiaries shows how important it is for you to talk with your estate planning attorney about the effect this new law may have on the beneficiaries of your retirement accounts.
Life is ever changing, and many changes may have a great impact on your estate plan. If you or your family have undergone any changes since your estate planning documents were originally created, now is the perfect time to reach out to your estate planning attorney for an estate plan checkup.
Are you a collector? Is your collection included in your estate plan?
Many people have collections about which they are quite passionate: The collections may be very valuable, for example, art collections, coins, stamps, or designer handbags, or they may have more sentimental than monetary value, such as political bumper stickers, postcards, or rocks. Regardless of its dollar value, if you have a collection, it should be included in your estate plan. You should make arrangements in advance to ensure that it is handled in the way you want, and if it is worth a lot of money, that its value is maximized. The following are a few steps you should take to ensure your wishes for your collection are followed:
Collect relevant documentation. If you have a valuable collection, it is important to create a catalog describing each piece, including photographs, bills of sale, and appraisals. If you have an insurance policy covering some or all of the items, it should be kept with your important documents as well.
Discuss your collection with your family members and loved ones. Although you may have invested a lot of time and money in your collection, and may have a strong emotional attachment to it, it is not unusual for family members not to share your passion about your collection. Try to understand their perspective if this is the case in your family. It is important to discuss this with them to ensure that your estate plan is designed to minimize the burden your family could face in dealing with the collection when you pass away. However, it is also important to find out from your family members if anyone would like to inherit certain pieces or the collection as a whole. If more than one person would like to receive certain items, it is prudent to figure out a reasonable solution in advance. This will help to avoid conflict between family members after you pass away.
Pass it on to loved ones. If you do pass your collection to family members, consider giving them your permission to sell or donate it. If one or more family members is interested in keeping it, consider whether to also provide a cash gift to help those beneficiaries with the costs of maintaining it. If the collection is one of your more valuable assets, take steps to ensure that other beneficiaries receive an equivalent inheritance, for example, by making them the beneficiaries of a life insurance policy. Alternatively, you could consider transferring your entire collection to a trust or a limited liability company that could manage the collection for the benefit of multiple generations.
Donate your collection to a museum or charitable organization. It is important to check with the organization to which you plan to donate the collection to make sure that it is able to handle housing or selling it, both of which could involve more expense than you might expect. Such organizations may request that a donation of cash accompany the bequest to offset the cost of maintaining the collection. Keep in mind that only a donation to a public charity will be tax deductible by your estate (or you, if you make a lifetime gift), and there are certain circumstances when even donations to a public charity will not be deductible.
Sell the collection. If you would like your family to sell your collection or anticipate that they will sell it, it will be helpful to them and likely minimize delays if you provide the names of dealers or auction companies that specialize in the type of collection you have, as this type of information may not be as easy to find for those who are not collectors. To prevent the collection from being sold for much less than its actual value, consider appointing an executor who is knowledgeable about it and its value.
Consider the tax implications. The Taxpayer Relief Act of 1997 lowered the maximum capital gains rate on gains from the sale of most assets to 20 percent but left the maximum rate on gains from the sale of collectibles at 28 percent. If you pass your collection on to a child or other beneficiary when you pass away, that person will have a tax basis in the property based on the value on the date of your death (i.e., a stepped-up basis). This will be the basis used to determine the amount of taxable gain and income tax the beneficiary must pay if the beneficiary eventually sells some or all of the items in the collection. As a result, if your collection has increased in value over time, your beneficiary’s tax bill will be lower if you wait until your death to gift the collection to them rather than making a lifetime gift—in that case, their basis would be the amount you originally paid, resulting in a larger taxable gain. On the other hand, if the collection has not increased in value, you could consider taking advantage of the annual or lifetime gift tax exclusions to make outright gifts of your collection while you are still living.
Make sure it is properly valued. Appraisals are particularly important, as they will help your executor, trustee, and family members determine the value of the collection. Be sure to use an appraiser knowledgeable about the particular type of items in your collection. This will ensure that these items are not sold for a price far below their actual worth or donated because of a lack of knowledge of their true value. Also, it will help you to make decisions about how to provide equitable gifts to your beneficiaries and whether to make gifts from your collection during your life or at death.
Finding Help to Design an Estate Plan for Your Special Collection
Your collection likely means a lot to you. It also adds another level of complexity to your estate plan. An experienced estate planning attorney can help you think through your goals and develop an estate plan that will allow you to rest assured that your collection will be handled according to your wishes after you pass away.
Who is the best person to be your executor, trustee, or agent?
When putting together an estate plan, you need to choose wisely those you trust to carry out your intent. Many people wonder what is the difference between an executor and a trustee. But those aren’t the only roles you need to consider filling when putting together your estate plan. You also may need to name agents and guardians.
The people you designate for these positions are generally called “fiduciaries.” Because these people will play an important part in the success of your estate plan you need to know what these roles entail and what kind of person would be best suited for each position.
Here is a summary of what fiduciaries you may need in your estate plan:
Executor – This is the person named in your will who has the responsibility for identifying what property you own, paying your debts and final expenses, filing final tax returns, and distributing the remaining assets to your beneficiaries. Often the executor has the authority to determine what assets make up a beneficiary’s share. The executor should be organized and able to make financial decisions. The executor needs to be impartial with regard to beneficiaries. He or she should be willing to communicate regularly with the beneficiaries and keep them informed.
Trustee – A trustee manages a trust. As opposed to the executor, this could be a long term position, depending on how long the trust is supposed to last. The trustee must be able to communicate with the beneficiaries and be responsive to their needs while following the terms of the trust. There are many kinds of trusts, so one person may be good as trustee for one kind of trust, but may not be appropriate for another kind of trust. For example, an adult child may be a good trustee for his or her own trust, but a poor choice as trustee of a trust created for his or her step parent.
Guardian of a Minor or Incapacitated Child – The guardian of a child’s “person” has the responsibility for making sure that the child’s day to day physical needs are met (food, clothing, and shelter). The guardian assumes the care of the minor or incapacitated child or children upon the death or incapacity of the last of the child’s parents to die or become incapacitated. The child’s guardian should be someone who holds the same values you do and someone you trust to raise your child the way you would.
Agent Under Medical Power of Attorney – This is the person you appoint to make decisions regarding your medical treatment when your health care provider has determined that you cannot make your own medical decisions. This person should not be afraid or hesitant to ask you what kind of treatment you would want in certain situations. He or she needs to be able to make tough decisions and be committed to making decisions based on what you want and have expressed, not on their own wishes. It’s important to have a frank discussion with your medical agent regarding the kinds of treatment you want or don’t want.
Agent Under a General Durable Financial Power of Attorney – This is the person you appoint to step in when you are unable to take care of your own business affairs, but you also may appoint an agent to act on your behalf when you are not incapacitated. The agent will be responsible for handling your day to day tasks, such as paying bills, managing investments, paying for your care and medical expenses, signing tax forms, dealing with insurance, social security, etc. This person should be organized and able to make financial decisions and have the time to handle your affairs. Your agent may hire outside help, like a bookkeeper or a caregiver.
Certain positions, such as an agent acting under a power of attorney, for practical reasons should probably be filled by one person at a time. For other roles, such as trustee or executor, you may wish to name two or more people. Just remember, the more people involved in the decision making, the more cumbersome the process may become.
You should also name successor executors, trustees, agents and guardians to act in the event the first person you choose is unable to take on that role.
In some situations, a trust company is the appropriate choice for carrying out your instructions as to how assets should be distributed and beneficiaries cared for. Trust companies are impartial and can be effective in diffusing emotions that may arise between beneficiaries and an executor or trustee. Another option may be to name an individual and a trust company as co-executors or co-trustees. The individual may be sensitive to a beneficiary’s needs and a trust company can take care of investing and managing assets.
In any event, your estate planning attorney will be able to help you explore further which roles you need to fill in your estate plan and the best people for those roles.
