Why Estate Planning Matters Continued

In our last newsletter we reviewed mistakes that ‘J’ made in his estate plan including not updating his plan when his children became adults.  As we discussed, you should review your estate plan every one to three years to determine if any changes are in order.  However, should any of the following life events occur you may need to review your estate plan sooner.

  • A beneficiary of your estate plan, Agent under your Durable Power of Attorney, Health Care Agent, person named as Executor or Trustee, or person nominated as Guardian or Conservator for your minor or disabled child dies or becomes seriously disabled.
  • You, a beneficiary, or a person nominated as Guardian for your minor or disabled child gets married, gets divorced, has additional children, or adopts children.
  • You move to another state.
  • You become seriously disabled, your health is failing, you need increasing amounts of help living day to day (eating, bathing, toileting, dressing, etc), or you are considering moving to an assisted living facility or a nursing home.
  • Your spouse dies.
  • You change your attitude about a beneficiary, executor, agent, guardian, trustee, or a spouse, or they change their attitude about you.
  • Serious creditor issues arise for you or a beneficiary, or even more important, you anticipate that your liability exposure may increase (e.g., you become a landlord or enter into a high-liability profession such as a high school principal, neurosurgeon, or regional distributor for a winery).
  • A minor becomes an adult, or a young adult has grown into a genuinely mature adult.
  • A parent or someone else not accounted for in your estate plan becomes dependent upon you.
  • You sell or acquire a business interest (not publicly traded stock)
  • You want to buy real estate in another state.
  • Your net worth, or that of a beneficiary or other family member, has increased or decreased by 50% or more.
  • You have done no estate tax planning, but your net worth is, or has grown to, over one million dollars (and you are a Massachusetts resident).
  • You are a married couple and have done estate tax planning, but the value of both spouse’s IRAs and Qualified Retirement Plans, plus the death benefit of all life insurance on the spouse with the larger amount of life insurance, plus one-half of all other marital assets, exceeds the federal estate tax exemption (currently $5.43M). Note that:
    • Your taxable estate is valued at its fair market value as of the date of your death, not what you paid for the assets.
    • Your taxable estate is almost always much larger than your probate estate. Your taxable estate includes, among other things:
      •  …the full, untaxed value of your IRAs and Qualified Retirement Plans;
      • …the full value of all assets held jointly with anyone other than your U.S. citizen spouse, if the asset was yours to begin with, or if you provided the money to purchase it;
      • …the full value of all assets in which you have retained a life estate;
      • …the full value of all POD accounts and assets with death beneficiary designations; and
      • …the death proceeds (not merely the current cash surrender value) of all life insurance policies on your life, including group term, if you have any control over the policy. While life insurance proceeds are usually free of income taxes, they are usually not free of estate taxes.