Congratulations! You took the time to consult an estate planning attorney, and have a Will or revocable trust with a guardian designated for minor children, financial power of attorney and advance medical directive. Just one small issue, the documents are seventeen years old, the children are not minors any more, you’ve changed states of residence and your circumstances have changed from what they were. It’s time to call the original estate planning attorney or a new one located near you.
Some of the circumstances that should prompt a review:
- A key decision maker, such as executor, successor trustee or agent with a power of attorney is no longer available for the role. The person has died, is no longer capable of or willing to serve in the role.
- You are single, have a beloved pet and no one has expressed interest or willingness to become the pet’s custodian.
- One of your children was in a serious traffic accident and is disabled, receiving government benefit such as Medicaid and Supplemental Social Security Income. A direct inheritance could disqualify the child for means-tested benefits.
- Relationships change and a favored beneficiary is no longer favored. While it is tempting to do a codicil to a will or an amendment to a trust, if the change is a significant one, it is better to do new documents that leave no doubt that the intent is to disinherit someone who was a beneficiary. Will contests have been provoked by lesser issues!
- The revocable trust that you signed years ago was never “funded”; i.e. none of your accounts or real estate was transferred into the name of the trust. An unfunded trust does nothing to avoid probate since your assets are still in your original name. In case of incapacity, your successor trustee is expected to step in to manage your affairs, but cannot manage assets outside the trust.
- Years ago, you and your spouse established individual revocable trusts. You have been in a single marriage, with no children from prior relationships and you agree on how your joint assets should be distributed. As we get older, we look for greater simplicity. A single joint trust may assist in achieving a degree of simplicity in your estate planning.
- Your marriage has ended with the death of your spouse. As the survivor, you are sole owner of your assets, making it necessary for your executor to follow the probate process to transfer your worldly goods to your heirs. If your executor is not a resident of your state, there may be bonds to pay, even if your will states that no fiduciary should have to pay any bond.
- You are recently divorced and should review who will now be the key decision maker, and who is the designated beneficiary on retirement accounts and life insurance. While Virginia treats a divorced spouse as pre-deceasing for purposes of inheriting under a Will, federal law covers qualified retirement plans. If your ex-spouse is still named as primary beneficiary on your 401(k), your ex-spouse will receive the account!
- You are considering making one or more of your children co-owner on bank accounts, investment accounts or real estate as a way of avoiding the probate process. For several reasons, don’t!
- 1) it is a gift, and depending on the amount, it could trigger a gift tax return. Any gift larger than $14,000 per person this year (the “annual exclusion amount”) will require a gift tax return.
- 2) Creditors of the child can attach the part of the residence the child owns to satisfy debts or court judgments. The divorcing spouse of the child can claim that the child’s interest in the property is available as assets to be divided in the process of the divorce. Under either of these circumstances, the house might be sold to satisfy the claims with the parent out on the street!
- 3) receiving property as a gift means inheriting the donor’s “tax basis”. For example, if the parent paid $50,000 for the house 40 years ago, when the child receives the gift, the child’s “tax basis” is one-half of the original basis or $25,000. If the house is worth $300,000, the child has a potential capital gain tax liability of $125,000 (child’s interest of $150,000 minus the tax basis of $25,000 = $125,000). If the child were to inherit the house at the parent’s death, the house receives a “step-up” in value to fair market value. In the previous example, the step up is to $300,000, and if the house is sold right away, there may be little or no capital gain.
- You are in the fortunate position of having an IRA or other qualified retirement plan that you will not need to be comfortable in retirement. You want your children to inherit the plan but are concerned they may decide to cash it in rather than allowing it to grow to become their retirement plan.