Time to review or update estate plan?

Estate Plan Edge: Life and laws change. Here’s how you might need to update your estate plan, especially now that capital gains taxes outweigh estate taxes.

We are all busy. No one likes to think about disability or death. Once we finally get around to creating an estate plan, it’s natural to want to stick it on the shelf and forget about it. But any estate plan that is going to provide meaningful benefits to you and your family must be updated on a regular basis. If it is true that we don’t naturally want to do something that we must do, then we should commit ourselves to taking intentional steps to overcome our inclination.

Every estate plan could, in a sense, be described as a combination of personal goals and objectives, and technical provisions — the legalese, as they say. Most of both the personal and legalese will be written in your living trust agreement. A well-drafted living trust can be updated with little difficulty by signing an amendment or restatement.

On the personal side, you will include instructions such as how your estate will be managed for you if you become disabled. This may include business decisions such as who will farm your land and on what terms, and personal guidance such as what sort of care you want, and when it is acceptable to move you to a nursing home. Your trust should go on to say who gets what and when, who in the family will be responsible for carrying out the plan, how you want your spouse provided for, and whether that might change upon remarriage. Then, as the assets pass on to your children, what conditions might you include to preserve the farm and protect the livelihood of the next farmers? Undoubtedly, your personal goals will include minimizing expenses and taxes, and therefore maximizing the overall benefit to your family.

How it works
In general, you explain to your attorney your personal goals and objectives, and your attorney should make sure you know what is possible so you can choose to do everything you wish. Then, once you have made your fully informed personal goals known, you expect your attorney to draft the appropriate documents. Next, you depend on your attorney to know and write the technical provisions — the legalese — necessary to accomplish your goals.

Every couple of years, you should review at least a checklist of your personal instructions. We call ours an “estate planning review worksheet.” Do you still have the right people filling the right positions of responsibility? Do you still feel the same way about your own care, placement and the like? Is the planned division of your property still appropriate? Do your instructions for preserving the farm still fit?

It’s possible that after this review, it will be clear that nothing has changed about your personal goals and objectives.

But what about the legalese? This is a time of year when, in our firm, we focus on technical updates to our clients’ estate plans. The tax laws and technical amendments are usually settled, and we can focus on how the newest laws affect our clients. How will the new definition of Qualified Business Income affect our clients? Do we need to include new language in their trust documents?

In addition to changes in the law, we and our colleagues are constantly looking for better, stronger and clearer ways to bring about better results. Following are two current examples:

Tax planning
1. Avoiding estate tax used to take priority over minimizing capital gains taxes. In recent years, however, the estate tax has become easier to avoid. In this new era, we have developed ways to minimize capital gains taxes. Updates to all married clients’ living trusts are in order.

2. Many families are passing assets to heirs (spouse, children and beyond) in trusts protected from lawsuits, divorces and catastrophic illness expenses. The traditional approach to avoid higher income taxes that can apply to trusts was to distribute all income each year, even if the heir had no need for it. A better approach has been developed. To maximize the power of asset protection trusts, new terms allow the income to be reinvested in the trust — increasing the heir’s protected wealth — while taxes are paid at personal rates from unprotected assets.

You reviewed your estate plan in the last couple of years and didn’t see anything you wanted to change. Fine. Did your attorney provide you the latest innovations to help your heirs reduce capital gains taxes and increase their protected assets?

Commit to regular updating, with professionals who make reciprocal commitments. Make the most of your investment in estate planning. 

Ferguson owns The Estate Planning Center in Salem, Ill. Learn more at  

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