Estate Planning Yearly Checklist
Dear Friend:
Re: Estate Planning Update and Annual Review Agenda
It is critical to review your estate plan annually because laws and your situation often change. Judges have been known to ignore certain trust provisions on various levels and these rulings prejudice the trustee in many respects. I suggest an immediate meeting if there is any dysfunction in the family!! If your current advisor did not ask you these questions, let’s meet to be sure your plan is not defective. If you remain with your current advisor, BE SURE you go through this checklist together and have the advisor INITIAL each item for your file. That way, your beneficiaries cannot say you failed to be thorough. Questions suggesting a review of your plan include:
- Does every adult in your family have a will, power of attorney and patient advocate agreement for health care, and a transfer on death deed to all real estate? Is a copy of the patient advocate agreement on file with your doctor? [ideally tabbed at the end of your estate planning book]?
- If you have a trust, are all assets in the name of your trust, or at a minimum, payable on death to the trust? Do you have a recorded deed showing all your real estate in the name of your trust? I suggest that you have a current informational title policy in your file to guarantee just that. Do you know that holding assets in joint ownership may subject survivors to unnecessary capital gains tax, claims of creditors, and improper distribution? DO NOT deed property into family members with “joint tenants with rights of survivorship” or rely on the bank clerk who listed your account as “joint” unless you consider the wider implications. For non-homestead real estate, an LLC is often the better choice. If you and/or your spouse rely only on a will to distribute your property, your estate will be probated!
- If you have a trust and minor children, should the guardian and trustee be the same person? Are special needs children or spend-thrift beneficiaries properly addressed?
- Should you sell assets with large gains to take advantage of the liberal capital gains exemptions and at the same time avoiding the snowball effect with taxes on Social Security benefits? We can do a 3 way call after every tax filing to discuss the best IRA drawdown strategy, and we should to do this annually!
- Do you want to add or remove someone named in your documents (guardian, trustee, beneficiary) due to relocation, death, remarriage, divorce, or birth? Or, add a grandchildren’s trust in a tax-free college account?
- To avoid probate, have you properly listed your assets and changed the beneficiary [or in many cases an alternate beneficiary] of your insurance, annuities, IRAs, and pension benefits to your revocable living trust? Recent IRS changes on IRA beneficiary designations may affect your estate planning strategy. Should your spouse, family, trust or charity be the beneficiary of your IRA?
- Does the value of your estate (face amount of life insurance, equity in home, IRA/qualified plan, investments) exceed $5,400,000? If so, there may be a big tax to your beneficiaries. Do you know how close your taxable income is to the lower tax bracket? If not, let’s meet to lower your tax bill!
- Do you fully fund your Health Savings Account, IRA, Roth IRA, SEP IRA and/or College 529, [the contribution windows add up – often $7,000 or more in certain plans up to 25% of income] each year? If not, you missed out as the windows expire every year too!
- Have you recently reviewed current tax strategies (gifts, education trust funding, family partnership, charitable giving) to make sure that any estate tax (rates to 55%) is minimized or eliminated? Have you shared with your spouse all estate planning documents? This is critical. Have you performed a life insurance audit every five years?
- If you own a business, do you have a buy-sell agreement? This protects you and your family in the event you or your co-owner dies, is disabled or retires. Have you created a corporation to protect your assets and provide certain other key person benefits? Are the stock certificates in the name of the trust? Placing certain assets in a separate entity insulates you from liability. If you or your family have any interest in land, a partnership, corporation or LLC, are the interests FORMALLY assigned to the trust? If not, your beneficiaries and the other partners may end up in protracted probate litigation.
- If you are in the 12% tax bracket, why not pay taxes on your IRA [and some of your annuities] now at 12% and have your beneficiaries get the asset tax free via a Roth Conversion? Otherwise, your beneficiaries might pay taxes on your IRA or annuities at a higher rate. If you are in the 22 or 28% tax bracket, have you considered moving assets into a tax-deferred annuity to avoid current dividend and capital gains taxes upwards of 28%? Be careful of the snowball effect on IRA withdrawals which reduce your social security benefits [see #4 above]. Absent a corporate match in a 401k, I strongly suggest Roth IRA contributions over any other subject to the approval of your tax preparer.
- Do you own or possess or stand to inherit any firearm, pistol, shotgun, rifle, or other discharge weapons? If so, we need to talk.
- Will you be retiring soon? If so, perhaps you might not want to take the joint and survivor option, meet with me to discuss how to take the straight life and give your spouse a larger benefit.
- Beneficiary forms used to be easy. NO MORE. If you have more than one beneficiary, especially on tax-deferred accounts, you have to now designate the plan of distribution less the beneficiaries all have to act in unison! Feel free to use the attached form for any more than one beneficiary on all such accounts
- Deductible mortgage interest is, for the most part, a thing of the past! This means there is more benefit to paying off mortgages sooner rather than later. This means a poker play between Roth IRAs, 401k loans, available cash or liquid assets to pay off mortgages in order to ultimately max out on the current 12k standard deduction per person each year. This could save thousands of dollars in short order, but we need to meet to make sure it is tailored in the right way subject to the approval of your tax preparer.
We need to meet if: A. YOU OWN A UNIVERSAL LIFE POLICY, B. YOU WILL INHERIT AN IRA. C. HAVE BENEFICIARIES THAT ARE ENVIOUS, ANGRY, POSSESSIVE, OR PETTY, D. YOUR MORTGAGE INTEREST IS LESS THAN YOUR STANDARD DEDUCTION, E. YOU HAVE A 401K WITH COMPANY STOCK, F. IF YOU WANT TO PLAN FOR LONG TERM NURSING HOME CARE WHILE PROTECTING ASSETS FROM GOVERNMENT ASSESSMENT, THE RULES ARE VERY TRICKY AND THE OPTIONS LIMITED. PLEASE CALL MY OFFICE IMMEDIATELY.
It is better to see me a day too early rather than a day too late! I can’t take your signature off your documents, so let’s meet for a no-charge review soon!
Let’s review the following: 1. Last two tax returns, 2. Deeds on all real estate [please let’s meet if you re-financed after putting your property in trust!!], 3. Investment, 401k, IRA, and life insurance statements AND beneficiary forms, 4. Corporate record books of any business, and 5. Current will, trust and other estate planning documents, if any. It is extremely important that you review the legal descriptions on all deeds and tell me about any property you sold on land-contract, even to relatives, as well as firearms, cottages, timeshares, and loans to relatives.