by Lloyd and Karla McAlister
In this holiday season, much thought is given to food. Here is some food for thought, for the good health of your personal estate planning ... and with no calories!
1. Proper funding of a revocable trust. Primarily the tool of the wealthy in the past, revocable trusts have become a common document in many personal estate plans today. Revocable trusts can be crafted to accomplish many planning objectives. However, avoiding the need for a court to appoint and oversee a guardian to manage ones financial affairs in the event of incapacity and avoiding the court supervised administration of ones estate after death, called probate, are by far the most frequent reasons for having a revocable trust in ones estate plan. If you have a revocable trust for the purpose of avoiding the need for guardianship and/or probate, you should review every asset in which you have any interest to confirm each and every asset is properly integrated in your overall plan through ownership and/or pay on death provisions. Although most assets can and should properly be owned by your revocable trust, there are very important exceptions. So you should review your estate plan at least annually in order to confirm every asset is properly integrated in your plan to accomplish all your planning objectives, both non-tax objectives, such as probate avoidance, and tax objectives. An annual review might be done at years end, with each newyear serving as a reminder for that review, or in conjunction with the preparation of ones annual income tax returns when you are handling your financial information for tax purposes anyway.
2. Beneficiary designations, payable on death (POD) and transfer on death (TOD) accounts. It is common for certain types of assets to pass from the owner to the person(s) of their choice at the owners death by a contractual designation, rather than by the owners Will or trust. For example, life insurance and certain types of retirement benefits often pass to beneficiaries designated by the owner. It is, therefore, critical for you to review any such arrangements in light of your overall estate plan to be certain those assets and benefits will pass in the event of your death to the person(s) or charities you intend. Since a well drafted Will or trust can consider and provide for many contingent events, such as the unexpected death of the person(s) you intend to be the beneficiaries of your estate, it may be preferable to have such assets arranged so that the provisions of your Will or trust will control the disposition rather than relying upon beneficiary designations and payable/transfer on death arrangements.
3. Deaths, including the unexpected death of a beneficiary. In planning ones estate, thoughtful consideration is given to formulating a plan which is to be carried out in the event of your death. However, all too often estate plans fail to consider the death of another person which can be critical to the success of your plan, your beneficiary. What if the person(s) and/or charities you intend to benefit are deceased or incapacitated (or no longer in existence, as to charity) at the time of your death? Or, what if they are alive at your death, but suffer death or incapacity (or legally dissolve, as to a charity) shortly after your death? All too often a person will designate their spouse or adult child(ren) to receive some or all of their property, only to have one or more of those persons die or become incapacitated at points in time which were unexpected and cause unintended results such as a probate where probate was intended to be avoided, or estate taxes which could have been avoided, or property passing to persons who were not intended to benefit (such as unintended benefit or control passing to the spouse or even the ex-spouse of a child). You should give careful thought to the possibility of your intended beneficiaries not being in existence, as you anticipate, at your death and, if that were the case, how you would prefer for your estate plan to operate in those alternative events.
4. Family harmony and the family fiduciary. Each of the five legal documents in a basic estate plan include the appointment of a fiduciary (Will - personal representative; trust - trustee; power of attorney - agent; advance directive - proxy). The appointed fiduciary is delegated the legal authority to carry out the duties assigned to them, such as a trustee managing trust assets or a healthcare agent giving instructions to medical personnel. Although family members, such as a spouse, parent or adult children, are logical candidates due to the intimacy of the relationship and their personal interest in the responsibilities to be undertaken, you should be mindful of the potential for family disharmony which can result from appointing family members. It might make sense to involve a corporate fiduciary (a corporation whose business it is to handle such fiduciary matters, for a fee) or trusted friends who have the professional skills to handle such responsibilities with objectivity, either along with family members or alone. In instances where family members are clearly the preference, which will undoubtedly continue to be the majority, careful consideration should be given to making those decisions and structuring such arrangements in the way which is believed will foster family harmony and not fuel the flames of conflict and disharmony. Since there is no one way which is best, and people and circumstances change over time, you should review the fiduciaries named in your documents at least annually in order to determine whether any changes need to be made, either with the persons named or the guidelines for their performance of the delegated duties.