The Process Of Updating Your Estate Planning Documents
Updating estate plans is typically hourly work, so the more prepared you are, the cheaper it will be. Just being honest. So, to plan for the most effective and efficient update, I recommend taking the following steps:
- Take a piece of paper or open an email for note-taking.
- Read the rest of this page carefully, paying special attention to “Questions To Consider” sections below. Take notes regarding what sections apply, if any.
- Read your estate plan (together with your spouse, if it’s a joint plan), taking notes, especially if any of the “Questions To Consider” sections apply.
- Once you are done, you should have a piece of paper or an email with a summary of changes you want or need, and specific concerns you have.
- Schedule our free consultation, and bring your note or email, as well as all of your existing estate planning documents, deeds to real estate, and your spouse, if you are married.
Once we meet for the free consultation, the process we take will depend on whether we’ve worked together in the past and you’re trying to update the plan I drafted, or whether you are new to Modlin Legal and coming with another attorney’s documents. Either way, with a summary of concerns and proposed changes you wrote down after your review of your estate plan, I will easily be able to determine the direction to take and the anticipated costs for the project.
Reasons To Update Your Estate Planning Documents
You may feel your estate planning affairs are in order – after all, you visited an attorney back in the 90s, and not much has changed since. However, estate planning gets out of date. Here are a few reasons why your plan might be not as good as it could be:
1. Changes in Law
Subtrust Funding and the Estate Tax Exemption
Estate planning documents may be out of date because of changes in law. The biggest changes in law we have seen have to do with subtrusts, the federal estate tax exemption, and a new concept called “portability”.
The federal estate tax is assessed onto all decedents’ estates larger than the exemption amount in the year of death. In the 90s, the exemption was under $1 million. While rising steadily in 21st century, the exemption did not reach $2 million per person until 2006.
Because of the low exemption amount, many Silicon Valley estates were potentially or actually taxable. Thus, most estate planning attorneys drafted complex trust instruments which allowed the surviving spouse to postpone the payment of the estate tax until after his or her death by mandating the funding of various subtrusts (often referred to as “A”, “B” and “C” Trusts or Survivor’s and Bypass Trusts).
It’s very important to review your existing trust in light of the size of your estate and the current exemption amount ($11.58 million per person in 2020). Because of the change in the exemption amount, most estates are no longer taxable, and the old documents are no longer needed. Furthermore, due to “portability”, in many cases there may no longer be a need to fund a Bypass Trust (which some older Trust documents may mandate).
QUESTIONS TO CONSIDER:
- What was the exemption amount in the year you drafted your trust, and what is the exemption amount today? Has there been a significant change?
- What was your net worth in the year you drafted your trust, and what is your net worth today? Has there been a significant change?
- If you answered “yes” to any of the above questions, consider scheduling a free consultation.
Advance Health Care Directive
The Health Insurance Portability and Accountability Act (HIPAA) was passed on August 21, 1996, and various related regulations have been enacted and implemented in the late 90s and early 2000s. For our purposes, one of the main consequences of HIPAA was the restriction of sharing confidential medical information with anyone, except the patient herself. A 3rd party needs a health care directive, signed by the patient before she lost capacity, containing an authorization to share the confidential medical information with the named 3rd party.
It’s important to update your estate planning documents because older Advance Health Care Directives simply may not have the language required to bypass the HIPAA restrictions and authorize medical professionals to share your confidential medical information with anyone but you. What this means is should you become incapacitated, your loved ones could run into extreme difficulty trying to manage your health care on your behalf.
QUESTIONS TO CONSIDER:
- Have more than 5 years passed since you signed your last Advance Health Care Directive?
- Are any of the people whom you’ve nominated to act in the event of your incapacity no longer able and willing to act, if needed?
- Have you gotten married or divorced, or have your children become of age since you signed your last Advance Health Care Directive?
- Have your opinions on life support, organ donation, end of life preferences changed since you signed your last Advance Health Care Directive?
- If you answered “yes” to any of the above questions, consider scheduling a free consultation.
2. Changes in Fact
Other reasons to revisit your old estate planning documents have to do with changes in fact – changes in your personal life.
QUESTIONS TO CONSIDER:
- Have the people you named as successor trustees gotten ill, too old, passed away, or simply moved away?
- Do you want to change who inherits from you once you passed away?
- Have you gotten married or divorced?
- Has the size of your estate changed substantially?
- Have your children grown up as expected, or do you need to change distribution ages?
- If you answered “yes” to any of the above questions, consider scheduling a free consultation.
3. Not Properly Funding Your Trust(s)
The third reason to revisit your estate planning is to make sure your trust is properly funded. Clients frequently email me letting me know that they just purchased a rental property, but forgot to title it to the trust. Or, they take real estate out of the trust during the refinancing process, and forget to put it back it.
Typically, it costs $300 – $400 per property to transfer it into the existing trust. That’s if the client is alive. If the client doesn’t get around to transferring it until after his/her death, then it costs about $5,000, as the family needs to petition the court to transfer the property. The choice is clear.
QUESTIONS TO CONSIDER:
- Since you created your trust, have you bought or otherwise acquired property in your own name, not in the name of the trust?
- Since you created your trust, have you refinanced any property where the lender may have taken your property out of your trust?
- Have you gotten divorced since you created your trust?
- If you answered “yes” to any of the above questions, consider scheduling a free consultation.