Five Reasons To Review and Update Your Estate Plan       

One of the first questions I ask new estate planning clients is whether they have existing estate plan documents. In many cases, especially when the clients are in their 30s and 40s, the answer is "No," and we proceed to discuss the different estate plan documents appropriate for their situation. In other cases, clients who may be in their 60s and 70s will show me documents created 30 or 40 years ago when their children were very young.

When I see these old documents I often think how lucky these clients are - lucky to have not needed these old documents to take effect, whether because of incapacity or death, since in many cases they no longer reflect the client's circumstances and/or may not incorporate important changes in the law. If you have an estate plan that has not been updated in several years and/or is not consistent with your current financial or family situation, it's important to review those documents with your estate planning attorney and change them as needed. Here are five reasons why:

1. Make sure your children are protected

If you are a parent of minor children (under age 18), your Will likely names a guardian and/or conservator for your minor children. Many people write Wills when their children are born and name a guardian who would be appropriate to care for an infant or toddler should the parents pass away. Often the named guardians are family members, such as parents who are now elderly, or siblings who have relocated to another state. Now that 10 or 12 years have passed since you wrote your Will, are these guardians still appropriate for your school-age children or teenagers? Is it important to you that your children be able to live in your home if you pass away or stay in the same school district with the same friends until they graduate high school?

Given these considerations, your choice of an appropriate guardian may be very different now than it was when your children were very young.

For some parents, naming one person to have custody of their children (the guardian) and another to be in charge of the children's inheritance (the conservator) makes sense. Discuss with your estate planning attorney whether appointment of different people as guardian and conservator is appropriate, and if a trust should be created to manage your children's inheritance rather than giving a child control of those assets at age 18. Finally, take the opportunity to create a Parental Appointment of Temporary Agent that will allow you to designate a person to have temporary custody and decision-making authority for your children before the guardian and conservator can be appointed. Don't neglect making these important arrangements to protect your children.

2. Address changes in the law

Like everything else in life, laws change. As I write this, Massachusetts is on the brink of a new probate law, the Uniform Probate Code, that will affect the way estate plan documents are drafted and estates are administered in Massachusetts. Tax laws also change and seem to be affected more and more by the political climate, which is ever changing. Over the past several years federal and state estate tax laws have changed, therefore trusts created to shelter assets from estate taxes may no longer be necessary, or if necessary may need to be revised. More recently, the Massachusetts Homestead law has been expanded to offer more protection, making it possible for those whose home is titled in the name of a trust to take advantage of the added security afforded by homestead law. As a general rule, you should review your estate plan at least every five years with your estate planning attorney. This review will give you the opportunity to discuss changes in the law that may affect your plan or that may afford new planning opportunities.

3. Address changes in your family or financial circumstances

A periodic review of your estate plan will also give you a chance to consider changes in your family or financial situation that require changes to your documents. If you have not reviewed your documents lately, you may be surprised at their provisions. Clients often forget who they named as back-up executor, or who is to receive estate assets if their primary beneficiaries are not living. As family members age, become disabled, or struggle with issues such as substance abuse, divorce, or financial difficulties, planning done years ago to benefit them will also need to change.

4. Look ahead and plan for long-term care

Planning for long-term care is becoming more and more important as many Americans are living well into their 80s and 90s.  An estate planning and elder law attorney can review the resources available to meet your care needs, determine whether you may be eligible for public benefits, including those available from the Veteran's administration, or if such benefits may be accessible to you with advance planning. The changing eligibility rules for public benefits make advance planning more important than ever. Because of the limited availability of public benefits and the expense of long-term care, long-term care insurance is a valuable resource that deserves consideration. The optimum time to consider whether this type of insurance is appropriate for you is in your 50s and 60s, typically well before you have the need for long-term care services or are thinking about these issues. Reviewing your estate plan with a focus on long-term care is important as you age and should be done sooner than you may think.

5. Review how beneficiaries are designated and assets are titled

The best estate plan documents can be ineffective if assets are not owned properly or beneficiaries are not designated correctly. In order to make sure your estate plan will work effectively, it is important to sit down with your estate planning attorney periodically to review asset ownership and beneficiary designations. Funding trusts can save your family thousands of dollars in legal fees and probate court filing fees. If you are married, funding tax-savings trusts can ensure that assets will be sheltered from estate tax at the death of the second spouse, in some cases saving tens of thousands or even hundreds of thousands of dollars in estate taxes for your heirs. Making sure beneficiaries are designated properly will also ensure the assets controlled by those designations will flow into a trust, or to the appropriate people, at your death, rather than passing into your probate estate with the attendant cost and delays associated with a probate proceeding.

It could be argued that any estate plan is better than no estate plan at all. However, a plan that is no longer appropriate because of changes in your family or financial situation, reliance on outdated laws, or appointing people to serve as executors, guardians, or attorneys-in-fact who are no longer a part of your life or able to take on those roles, can be worse than nothing at all. Reviewing your estate plan periodically with your estate planning attorney will ensure that when those documents need to be used, your wishes will be carried out, the process will go smoothly, and your family will benefit.

By: Attorney Suzanne R. Sayward    

For those of you who have spoken with us during the past few years, you know that we have been anxiously hoping for some certainty in the federal estate and gift tax law. Well, we finally got that certainty and it came as a welcome way to start the New Year!

To give you some background information, the uncertainty in the law was centered on  the amount of the exemption from federal estate tax.  The exemption is the amount that can pass free of estate tax when someone dies.  Under the 2001 Bush tax cuts, the exemption from federal estate tax increased dramatically from $675,000 in 2000, to $3.5 million in 2009.   That meant, for example, that the estate of a person passing away in 2009 who had a taxable estate of less than $3.5 million would owe no federal estate tax.

The uncertainty in the law was a result of the fact that the Bush tax cuts were scheduled to "sunset" (i.e. expire) on December 31, 2010.  Had this happened, the federal estate tax exemption would have been reduced to $1 million.  Unable to reach a resolution in 2010 about how to handle the expiration of the Bush tax cuts, Congress postponed the sunset date to December 31, 2012 - the fiscal cliff.   As part of that postponement, Congress increased the federal estate tax exemption for the years 2011 and 2012 to $5 million and indexed it for inflation.  As such, estates of decedents dying in 2012 passed free of federal estate tax so long as the value was less than $5,120,000.

The 2010 postponement legislation not only increased the amount of the federal estate tax exemption to $5 million, it also increased the federal gift tax exemption and the generation- skipping transfer tax exemption to $5 million.  Before this legislation, the gift tax exemption and the generation-skipping transfer tax exemption were both $1 million, indexed for inflation.   For people with large estates, increasing these exemptions meant significant planning opportunities.

For the past two years we have been living under a veil of uncertainty since the law provided that unless Congress passed new legislation, the estate, gift and generation-skipping transfer tax exemptions would revert to $1 million as of January 1, 2013.  (The gift tax exemption and the generation-skipping transfer tax exemption were both previously indexed for inflation so these exemption amounts would have been slightly more than $1 million.)

As we all know, Congress passed the American Taxpayer Relief Act of 2012 on January 1, 2013, and the fiscal cliff was averted.  The resulting law is welcome news for estate planners and their clients.  As of January 1, 2013, the $5 million per person exemption from federal estate, gift, and generation-skipping transfer taxes is permanent.  This amount is indexed for inflation for all three exemptions, and as of January 1, 2013, the indexed exemption amount is $5,250,000.  This means that the vast majority of estates will owe NO federal estate tax.

Keep in mind that if you are a Massachusetts resident, or if you are a resident of another state but you own real estate in Massachusetts, your estate may owe estate tax to the Commonwealth.  There is a $1 million per person exemption from Massachusetts estate tax. 

If you have questions about how the estate tax will impact your estate, you should contact your estate planning attorney to discuss your situation.

To learn more about the American Taxpayer Relief Act of 2012 click here to read a summary of the law provided by Attorney Steven Samuel.

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