With the end of the year at hand, it is an appropriate time to review your estate plan to make sure it is still up-to-date. Here are a handful of tips to consider:
Beneficiary designations are incredibly important and often forgotten. These accompany your retirement accounts and life insurance policies, and dictate to whom that property should go upon your death. If you do not keep on top of your designations, they will not keep pace with your life. So, as the rest of your life is changing—you get married, divorced, or have children—your designations will nonetheless remain the same. This could mean property going to people you don’t want it to go to, such as an ex-spouse, or property failing to go to individuals you would have it go to, such as children. Beneficiary designations override the rest of your estate plan. To avoid this frustration, dredge up your life insurance and retirement accounts, verify you have current statements, and ensure that your beneficiary designations are who you want them to be. We also suggest having your estate planning attorney do a review to make sure the designations are in line with your estate plan’s goals.
Estate planning is about much more than having a plan for who gets your stuff after you die – it should also include a plan for what happens in case you lose your mental capacity. If your plan is more than a few years old or does not include a fully funded Revocable Living Trust, then chances are it lacks a good mental disability plan. Additionally, your Health Care Power of Attorney provides a surrogate decision maker for medical decisions when you are no longer able to make medical choices on your own behalf. This needs to be kept current to track changes with HIPAA and state law. Durable Powers of Attorney—or Financial Powers of Attorney in casual conversation—should also be kept up-to-date for an altogether more practical reason—financial institutions scrutinize these pretty closely and are wary of accepting any documents that are more than a couple of years old.
If privacy and discretion are important to you, then these goals should be, and certainly can be, carried over into your estate plan. Is privacy incorporated in your current plan?
If your plan is older than just a few years, new estate tax planning rules could make your plan come out different than intended. This is not a hard and fast timeframe, but many changes to the estate planning landscape became permanent at the beginning of 2013. For example, take the federal estate tax exemption—the amount of property an individual can pass on before estate taxes are levied. At this moment, the exemption is currently $5.34 million. This is vastly different than the $3.5 million exemption as it existed at the end of 2009, or the $675,000 exemption of 2000. There is also the advent of portability—the ability to pass on unused exemption amounts to a surviving spouse. Portability did not exist in the last decade. Estate planning is more flexible than it has ever been before. However, the older your estate plan, the more likely it is missing out on this flexibility and the favorable planning opportunities that have since become available.
Don’t let the chaos of the holiday season prevent you from avoiding the federal gift tax by making annual exclusion gifts, medical payments gifts, and educational gifts. Married couples can take double advantage of the annual exclusion and gift $28,000 in 2014 ($14,000 each) and then another $28,000 in 2015. Another type of transfer that the IRS doesn’t consider to be a gift for gift tax purposes is a payment that qualifies for the medical exclusion. Payments that qualify for this exclusion are ones that are made directly to an institution that provides medical care to an individual or to a company that provides medical insurance to an individual. In general, medical expenses that qualify for this exclusion are the same as those that are deductible for federal income tax purposes. There are also educational payments that can qualify as exclusions from gift tax. Your payments that qualify for exclusion are ones that are made directly to a qualifying domestic or foreign institution for an individual’s tuition. If you fail to follow the exclusion rules your payments could be considered a gift, so you should consult with your estate planning attorney or accountant.
State law goes a long way in trying to protect your estate plan, but it is not prudent to rely on it if there have been significant changes in your own life. Have you recently been married, or maybe you were just divorced? Has there been a birth or death in the family? Maybe there has been a significant change in your finances. Any of these are reasons to return to your estate plan and see if it still addresses your goals and aspirations.
*Breandan Donahue is an estate planning attorney for Goosmann Trust Law Counsel, a boutique estate and business succession planning department within the full-service Goosmann Law Firm with offices in Sioux City, Iowa and Sioux Falls, South Dakota. Breandan is licensed in South Dakota, Iowa, and Nebraska. For more information, go to www.TrustLawCounsel.com
CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.