Recent changes to the Federal estate tax laws have greatly reduced the number of people who will be subject to the Federal estate tax. However, there still are many non-tax reasons to review and update your estate planning documents.
1. Transfer of assets: Your estate planning documents serve to communicate your intentions. They designate how your assets will be transferred – whether outright to your beneficiaries, to an existing trust, or into a new trust that will be created under the provisions of your will (testamentary trust). Testamentary trust provisions in the will also may specify when beneficiaries will receive assets. Wills also contain bequests of financial and non-financial assets (family heirlooms).
2. Management of your affairs: Upon one’s passing an estate is created. The manager of the estate is the executor or personal representative. The executor is responsible for accounting for your assets and liabilities, working with the courts, and disposing of your assets in accordance with your wishes. If trusts are created under your will, the trustee(s) you select will administer them.
3. Guardianship for children: If you have minor or disabled children, your will is the document that specifies your choice of a guardians. Depending on your circumstances, you may want to provide financially for the guardian you select.
4. Design of trusts: There are many types of trusts. They allow for control over assets through distributions. This control may be important when providing for children, a person with disabilities, a person with addiction or spendthrift issues, or a financially unsophisticated spouse. Trusts can also offer various degrees of protection from divorce and the claims of creditors and predators.
5. Medical and financial documents: Along with wills and trusts, there are other documents that are important to the estate planning process, such as the health care power of attorney, health care directives (Living Will) and a general durable power of attorney over financial matters.
6. Tax planning: In the past, estate planners heavily focused on the titling of assets to avoid the Federal estate tax. Recent changes to the Federal estate tax laws have greatly reduced the number of people who will be subject to the Federal estate tax. However, many states have estate tax provisions that differ from the Federal tax laws. Accordingly, one may have a federally exempt estate that still carries a significant state tax. There are other tax provisions that require a review of existing estate documents.
7. Gifting: Gifting provides many tax savings opportunities, but can also create complications from the impact of the gifts on the recipient. Careful consideration should be made as to timing and whether gifts are made outright or in trust.
Although recent changes to the Federal estate tax laws have greatly reduced or eliminated the potential estate tax liability for many, it has not reduced the need for thoughtful estate planning.
Reference: Forbes (March 15, 2018) “7 Reasons To Review Your Estate Plan, Trump Tax Law Aside.”