Many people are aware of the importance of and the benefits to having a comprehensive estate plan in place. For many, the buck often stops at executing a simple will to account for how their assets will pass after death. However, there are significant advantages to continuing to consider your estate plan beyond the will.
1. Importance of an Estate Plan
Establishing a comprehensive estate plan is important for many reasons. The foundations of every estate plan are the estate planning documents, which typically consist of a will, a pour-over trust, a financial power of attorney, and health care directives (a living will and/or health care power of attorney). While preparation of your initial estate plan is a crucial first step, creating an estate plan is not a “one and done” process.
A well-designed estate plan will significantly relieve the burden of administering your estate borne by your survivors and reduce the potential estate administration issues that can create family conflict. Survivors often find that the estate plan undertaken by their parents was the best gift they received. Estate administration can be simplified by planning to avoid probate administration, which is a slow and public process. To accomplish this, the ownership of your assets must be examined (i.e., how your assets are held or titled) and all beneficiary designations must be reviewed. How your assets are titled upon your death will determine whether the asset will need to be probated or whether the asset will pass directly (or indirectly) to your designated beneficiary. The use of trusts and transfer on death beneficiary designations can be very effective tools for avoiding probate administration. This process is as important as the preparation of the estate documents because it ensures your assets will pass according to your plan. A continual review of your estate plan allows you to be sure your plan continues to accomplish your specific estate objectives as your life circumstances change.
2. Continuous Review of Estate Plan
So, you sat down and executed your estate planning documents—now what? The one thing we can all be sure of is the passage of time will bring life changes. The best way to keep your estate plan in good shape is to sit down with your documents annually and review the changes to your financial assets, family, your appointed executors, trustees, guardians, and agents, and the law that have occurred in the past year. Some changes you may want to consider are discussed below.
A. Change in Financial Assets
Did you buy a car? Sell a house? Open a new bank account? Inherit something? One of the first things you should do when reviewing your current estate plan is to take stock of everything you own and how each asset is titled. If you sold personal property, like a watch, that you devised to a specific person in your will, you may want to update your will to account for this change. If you opened a new bank account, you want to be sure you listed a transfer-on-death beneficiary for that account. A benefit to owning personal property or real estate is the flexibility to buy new or sell old property whenever desired. However, many times new assets are acquired after the initial execution of estate planning documents, without considering how the new assets should be titled for estate purposes. This is often how assets slip through the cracks of an estate plan and wind up passing through the probate court process.
B. Change in Family/Fiduciary
Did you have another child? Are your children now adults? Are your children married? Do you now have grandchildren? Do changes need to be made to your executors, trustees, or agents? Another area to consider when conducting an annual estate plan review is your personal circumstances. A change in your life like a new job or a new child could mean you need to change how you want your estate to be distributed upon your death. When considering your changed circumstances and your estate plan documents, it is important to review the executors, trustees, and agents you’ve appointed in those documents. Maybe you no longer want your parent to be your executor because you have a spouse now, or your child has grown up and no longer needs a guardian appointed. Are you now concerned about protecting the estate that will pass to your children from an ex-spouse or from creditors? Examining your personal circumstances as well as the agents you have appointed in your estate documents annually and updating those estate documents allows for a smooth, straightforward, and cohesive distribution of your property upon your death.
C. Change in Law
The law is constantly evolving, and this could very easily impact your estate plan. For example, in 2012, Ohio adopted the Uniform Power of Attorney Act, which instituted a new statutory format for Power of Attorney documents as a way to combat abuse of powers by agents. If you executed a power of attorney prior to 2012, you may want to consider updating your power of attorney to conform to the Act. Changes to the federal estate tax could also potentially impact your estate plan. As of 2023, the federal estate tax exemption is $12.92 million, meaning only estates that are over $12.92 million are subject to the federal estate tax. However, the federal estate tax exemption amount is scheduled to sunset on January 1, 2026, and unless Congress votes otherwise, on January 1, 2026, the federal estate tax exemption will be reduced to $5 million, as adjusted for inflation. Depending on the size of your estate, this change in law could greatly impact how you wish to organize your estate plan, and you may want to take advantage of the current federal estate tax exemption amount prior to that date.
Our experienced estate planning team here at Onda LaBuhn is ready to help you either begin the estate planning process or guide you through reviewing and updating your current estate plan.
Erin M. Knueve