The Ultimate Guide to Reviewing Your Estate Plan
25 Questions to Ask
Your estate plan is an investment in you and your family's future. As years pass by, your family will grow, your assets will change, and new laws will be passed. Everyone should review their estate planning documents once every year. We recommend you do get into the habit of doing this during tax season. Additionally, we think your estate plan should be professionally reviewed at least once every 5 years. Indeed, if you have a significant life event, like retirement, the death or incapacity of a person named in your plan, or a significant health diagnosis, this update should be immediate.
This Checklist focuses on the foundation of your estate plan, including documents such as a Last Will and Testament, Revocable Trust, Financial Durable Power of Attorney and Health Care Power of Attorney. Note that references to a "Will" on this Checklist are generally interchangeable with the term "Revocable Trust," which can also be used as the centerpiece of an estate plan.
Below are some questions you should ask yourself when reviewing your existing estate planning documents:
Marriages, divorces and new grandchildren are all reasons to examine your estate plan, and make the changes so that you estate plan reflects your wishes.
1.) Have you had significant changes in your family? Marriages, divorces, and new grandchildren are all reasons to examine your estate plan and make the changes so that your estate plan reflects your wishes. Don't be alarmed if a daughter or granddaughter gets married and changes her last name. What was important was her legal name when the document was signed — not what it changed to. Therefore, your estate plan is still valid even if someone's last name has changed. But with that said, if you are already making other changes, you might as well update your estate plan to reflect the family member's new name as well.
2.) Have you moved since you last updated your estate planning documents? If you moved within Michigan, does the deed to your new house reflect your Trust? If you moved from one state to another, there might be questions of your existing estate planning documents' interpretation or validity in your new state of residence. Generally, estate planning documents executed in one state will be valid in another state. Still, your new state of residence may have specific statutes or tax laws that are not addressed in your existing estate planning documents. You may want to contact an attorney in your new state of residence to advise you on what might need to be updated.
3.) Do you own assets held in joint accounts, or where you have a named beneficiary? These assets will not be distributed in accordance with your Will or Trust. Instead, all joint assets will pass to the surviving joint owner, and all assets with a beneficiary designation will pass to that beneficiary. Accordingly, if you have a convenience account with one of your children, the assets in that account will pass to that one child at your death, regardless of what your Will or Trust might say. You should carefully review all of your assets' ownership and beneficiary designation to be sure that the assets will be distributed to the right people at your death.
4.) Are your beneficiaries correct? First, understand that there are 2 types of beneficiaries in most estate plans:
(1) Specific Bequest Beneficiaries
and
(2) Residuary Beneficiaries.
Specific bequest beneficiaries only receive a designated asset or amount. For example, if you left $5,000 to a friend. These beneficiaries need to be designated in a way that they are not entitled to a full copy of your plan or your financial information beyond what they are entitled to receive.
In contrast, residuary beneficiaries are the people who receive the balance of your estate after all the debts, expenses, and taxes have been paid; any specific bequests have been made, and; joint accounts or any assets with beneficiary designations have been distributed to the appropriate people. These beneficiaries are entitled to a copy of your plan and all accountings.
You should review this section of your estate planning documents carefully. If one of the beneficiaries were to predecease you, will that beneficiary's share pass to his or her children, your other children, or otherwise?
5.) Are assets being distributed to your beneficiaries outright or in Trust? If assets are distributed to a beneficiary outright, the beneficiary can do whatever they please with the assets. However, once transferred to the intended beneficiary, those assets are at risk from the beneficiary's creditors, a spouse in a marital action, and poor judgment. It is possible to create trusts that give the Trustee great flexibility in distributing the assets to the beneficiaries, and at the same time, protect those assets from a beneficiary's immaturity, misuse, creditors, divorce, etc. Also, trusts may be used to direct how assets will pass upon the beneficiary's death. For instance, many times, in a second marriage, a trust will be established for the benefit of the spouse but provide that upon the spouse's death, the assets will pass back to the decedent's children. You should speak with your attorney about the benefits and drawbacks of using a trust to distribute your assets to your beneficiaries.
You should look at the ages when the assets will be distributed outright to the beneficiaries, keeping in mind that assets distributed to somebody who is 18 are likely to be spent differently than if distributed to a person who is 25, 30 or older.
6.) If you currently have a trust established, are the terms still appropriate? Many people establish trusts for young beneficiaries. You should look at the ages when the assets will be distributed outright to the beneficiaries, keeping in mind that assets distributed to somebody who is 18 are likely to be spent differently than if distributed to a person who is 25, 30, or older. It may be appropriate to increase or reduce the ages at which the beneficiaries will receive an outright distribution from the Trust. Alternatively, it may be appropriate to give the beneficiary an income stream or give the Trustee greater discretion to distribute the principal. For example, a trust might say that a child will receive the income from the Trust starting at age 25 and that the principal must be distributed to the child outright at age 30 and 35. Prior to age 35, the trust principal could be used for the beneficiary pursuant to the Trust's terms. By structuring a trust this way, the beneficiary has an opportunity to learn how to manage money.
7.) Do any of your beneficiaries have special needs? If you have a beneficiary who is elderly or disabled, that beneficiary may need to qualify for public benefits in order to maintain their standard of living. Suppose a person who is receiving public benefits receives an inheritance directly. In that case, the public benefits will cease, and the person must exhaust the inheritance to pay for the care that the public benefits would otherwise have provided for. Once the inheritance is exhausted, the person must then reapply for benefits. This can be a traumatic and expensive process. Instead, you should consider leaving assets in a purely discretionary Special Needs Trust for the person, drafted in such a way that it does not interfere with the person's ability to receive public benefits. By using this approach, the Trust becomes a security blanket for the beneficiary, not a burden.
8.) Do you complete a separate personal property designation? This is separate writing where you indicate who should receive specific items of your personal property such as photographs, jewelry, artwork, etc. If you have one, you should review it and make sure that it is still an expression of your wishes. If you don't have a personal property designation, you may want to consider creating one so that specific items will go to specific people. I have also suggested on many occasions that clients take pictures of important personal possessions, place the pictures on pages within your estate plan with your notes about each item. This helps your family to better understand your wishes. We strongly believe that in this day and age, the use of photographs can greatly assist these designations.
9.) Is any person receiving your personal property a minor? If so, your estate plan should make provisions for that property to be held by the minor's Guardian until he or she attains an appropriate age.
10.) Do you have any specific gifts or bequests you want to make? Any gift of a cash amount or of an asset other than personal property should be stated in your Trust. If you have given away a specific asset to a person in your existing Trust (i.e., your shore house), be sure that the asset still exists. Also, your Trust should provide for what happens if the specific asset is sold during your lifetime.
The acquisition of an inheritance from another family member, success in business, a retirement buy-out, and even the rare client who has won the lottery, can greatly effect your estate plan.
11.) Are your total combined assets, including life insurance death benefits, changed substantially since your last meeting with an attorney? The acquisition of an inheritance from another family member, success in business, a retirement buy-out, and even the rare client who has won the lottery can greatly affect your estate plan. Likewise, a significant reduction in the size of your assets, through a stock loss or a variety of other reasons, should be discussed with your attorney during a trust review. It should be pointed out that beginning in 2013, no estate tax is due on estates below $5.25 million dollars. This is the highest estate tax exemption ever, which is great news for most of my clients.
12.) Does your estate plan contain provisions to allow you and your family to be as flexible as possible in meeting your goals? It is impossible to say now what the future will hold. You can be sure that the future will bring new laws and changes to your beneficiaries. Since your estate plan will come into effect when you are no longer here to change it, a comprehensive estate plan must make provisions for an unknown future. If a trust is being used as a way of sheltering assets from taxes, or to hold assets until the beneficiary reaches an appropriate age, you need to look at the level of guidance and flexibility you are giving your Trustee. A flexible trust created for the benefit of your spouse and your children might contain such things as a disclaimer provision, a limited power of appointment, and the option for the spouse to appoint an Acting Trustee. As a result of these provisions, your spouse has the decision making authority over whether or not to set up the Trust, the ability to distribute the assets to your children without restriction, and the right to appoint a third party who may distribute assets to your spouse without restriction.
13.) What authority does the Trustee have to distribute the assets in the Trust? Is the Trustee's authority to make distributions limited to health, maintenance, education, and support, or are distributions within the Trustee's total discretion? If the beneficiary is also serving as Trustee, then distributions to the beneficiary/Trustee must be limited to health, maintenance, education, and support. If the beneficiary and the Trustee are separate people, you may want to give the Trustee more flexibility in deciding how to distribute assets. You should also let the Trustee know what your goals are in terms of the distribution of assets. If the Trust is for the benefit of the spouse and children, is the primary beneficiary, the spouse, the children, or both? If the Trust is for the benefit of minor children, is the goal of the Trustee to hold the assets until the child reaches a certain age, or to use them for certain things along the way such as education, marriage, etc.?
14.) Are your alternate beneficiary designations appropriate? In the event that all of your primary beneficiaries pass away, who will your assets go to? Many people take the approach that 1/2 of the assets will pass to one spouse's siblings and their children, and the other 1/2 of the assets will pass to the other spouse's siblings and their children. However, this approach may not work for you, in which case you should make sure that your assets are directed to one or more specific people or organizations. This desire should be stated in your Will or Trust.
15.) Are your Executors, Trustees, and Guardians still the appropriate people in the appropriate order? Over time, people and relationships change, so it may be appropriate to rearrange your Executors, Trustees, and/or Guardians. You have the ability to appoint one or more people to serve in these roles, as well as Successors for those people. In addition, if addresses are listed, you should verify that they are current.
In 2012, Michigan adopted a new law to deal with the fraudulent use of Financial Durable Powers of Attorney.
16.) Has your Michigan General Durable Power of Attorney been updated since 2012? If so, banks in many states are not required to accept it. In 2012, Michigan adopted a new law to deal with Financial Durable Powers of Attorney's fraudulent use. A Financial Durable Powers of Attorney signed after 2012 needs to include special provisions and a signed acceptance to be valid under this new law. Regardless, we recommend that all Financial Durable Powers of Attorney and Health Care Power of Attorney be refreshed every 3 to 5 years.
17.) Does your General Durable Power of Attorney continue to name appropriate attorneys-in-fact? You are allowed to name one or more attorney(s)-in-fact to act in your place with reference to your financial matters in the event that you are unable to do so. You should verify that your named attorney(s)-in-fact and any successors have current addresses.
18.) Does your General Durable Power of Attorney allow for Medicaid planning? Many seniors want the ability to engage in asset protection planning to shelter assets from the cost of nursing home care. Your General Durable Power of Attorney should specifically grant your attorney(s)-in-fact the power to engage in this type of planning. We are recommending to all of our clients that they update their General Durable Power of Attorney if it does not specifically authorize this type of planning in the future.
19.) Does your Health Care Power of Attorney continue to name appropriate Health Care Representatives? You are allowed to name one Health Care Representative at a time to make medical decisions for you in the event that you are unable to do so. You should verify your named Health Care Representative and any successors have current addresses.
20.) Does your Health Care Power of Attorney reference the Health Insurance Portability and Accountability Act ("HIPAA")? The HIPAA privacy rules have created a new category of private information called "Protected Health Information" (PHI) or "Protected Medical Information" (PMI). In order to avoid any issues about the persons to whom your health care provider may divulge your PHI, you should specifically state who has the right to receive your PHI. We are recommending to all of our clients that they update their Health Care Powers of Attorney to include a HIPAA provision to avoid any inability of a Health Care Representative to receive information in the event of a medical emergency.
You should make sure your Health Care Power of Attorney clearly states your desires.
21.) Does your Health Care Power of Attorney clearly state your desire about what medical treatment you want to receive or refuse in a terminal situation? You have a right to direct your care if you are terminally ill. You should make sure your Health Care Power of Attorney clearly states your desires.
22.) Does somebody know where all of your estate planning documents are? If you have the greatest estate plan in the world, but nobody knows how to access your documents in the event of an emergency, it is going to be useless to you. One or more trusted people should know where they can find originals and copies of your Trust, Last Will, and Testament, Financial Durable Power of Attorney, and Living Will/Health Care Power of Attorney. In addition, we recommend having copies of your Health Care Power of Attorney and Living Will placed into your medical record with your primary care physician. Note that your original General Durable Power of Attorney is a very powerful document and could allow somebody to access your accounts while you are alive without your permission. As a result, it may be best not to have the original of the General Durable Power of Attorney easily accessible.
23.) Have you attached an updated set of financial forms to your estate plan? If you completed an estate plan through the O'Bryan Law Firm, we had you complete a basic set of financial paperwork. This was perhaps the first time you ever placed on paper what you own, from real estate to insurance to investment accounts. This paperwork can be instrumental in keeping your Trust properly funded. Additionally, suppose you are ever unable to manage your affairs, even for a brief period of time. In that case, these forms can be a valuable tool for allowing your designated fiduciaries (those named by you as trustees or financial power of attorney) to better manage your affairs. You might know where every deed, insurance policy, and account statement is. Chances are no one else does. These forms can help connect the dots.
24.) Are your digital assets protected? We live in an increasingly digital life. Many people no longer receive statements and bills in the mail. Instead, online access to everything from bank accounts to utility companies has become the norm. But what if you suddenly weren't there to manage these accounts? Does your spouse or family have the information necessary to access these online assets in your absence? Do they even know your passwords? Preparing a "digital estate plan" can help ensure that your personal and financial information remains safe, and your wishes for your online persona are carried out. Don't forget to consider your online presence on each of the major social networking sites such as Facebook, Twitter, and LinkedIn.
25.) Has your Trust been updated in Michigan since 2010? Michigan finally adopted a series of laws to create uniformity statewide with the enforcement and interpretation of trusts. This is called the Michigan Trust Code. Most estate plans created by the O'Bryan Law Firm over the past decade were already designed to be 100% valid under this new set of laws. But unfortunately, many other trusts we review are not in compliance with these new laws. Overall, the new trust code is a very positive development. It recognizes the important role that trusts can and should play as part of your estate plan here in Michigan. It helps make those documents likewise more enforceable in other states. Make sure your Trust has all the necessary provisions to take advantage of our new trust code.
Laws change. Families change. Your assets and ownership interest likewise change and evolve over time. Think of all that has happened to you and your family over the last 10 years.
You have taken the first steps by having completed an estate plan in the past. That said, I can't tell you how many times I have met with families at a point of crisis — and the estate plan did not accomplish its intended purpose because it was seriously ignored for too long a period before it was needed. Laws change. Families change. Your assets and ownership interest likewise change and evolve over time. Think of all that has happened to you and your family over the last 10 years.
Additionally, your estate plan is an investment. If your estate plan does not address your current situation or is not completed through the appropriate re-titling of assets, then that investment may have little or no value. The law gives you the right to direct what happens to your assets upon your death and gives you the ability to minimize any tax consequences. You should take advantage of the law to make sure that your estate plan meets your needs today and into the foreseeable future.
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