When does a person think about creating or updating his or her estate plan? Typically at a time of crisis or urgency, such as a negative health diagnosis, a death in the family, an upcoming lengthy trip or, in our experience, right before our clients head back up north for the summer.
Unfortunately, the old saying “haste makes waste” has validity for a reason—it’s frequently true. Failure to think through contingencies, coordinate the plan with your asset structure, or to analyze potential tax impacts and law changes can prevent the plan from being as effective as it might have been.
The wiser approach is to treat the estate plan like you do your investment portfolio with regular periodic reviews and updates, with measured and dispassionate analysis. Of course, it is often difficult to be unemotional when thinking about your eventual death or incapacity. However, one role of an attorney is to add this layer of dispassionate analysis, helping you think through contingencies and alternatives.
One of the issues that should be regularly reviewed is the fiduciary appointment in each estate planning document. This includes reconsidering the individuals, including alternates, who will be responsible for managing your financial affairs or making health care decisions during your lifetime, as well as the individuals who will be responsible for settling your estate and/or administering your trust.
When thinking about the person who will act as your attorney-in-fact, or as your trustee, you should ask yourself: “Who would be most willing to disinherit himself or herself?” In other words, if this individual is responsible for managing your caregivers and selecting your nursing facility, are they going to be willing to spend more if it means they will inherit less? Similarly, after your death, will this person be able to impartially administer your estate, accurately report to other heirs, and maintain communications? The answers to these questions may change over time.
Another important area to review is the tax impact of your death. Depending on the uncertain estate tax law (currently scheduled to revert to $1 million per person in 2011) and the ever-changing values and makeup of your assets, this is typically a moving target.
Additionally, there can be significant income taxation of your IRA or retirement accounts that might otherwise be minimized or deferred with proper planning. Beneficiary changes are also a frequent trigger for estate planning changes. While most estate planning attorneys will do their best to anticipate beneficiaries dying “out of order,” such unexpected deaths may still require a reconsideration of the plan.
In our experience, meeting with clients on a regular basis—every four to five years for most clients, more frequently for clients with complicated estate plans—helps ensure that the estate plan properly fulfills our clients’ intent and that unexpected or undesirable events are minimized at the time of their death or incapacity.