Should You Update Your Estate Plan?
Your estate plan is not set in stone. An estate plan should evolve over time, based upon changes to your health, assets, family relationships, and new laws. All of these changes can drastically alter the intent of the plan that you currently have in place. Not making the appropriate adjustments can lead quickly to the old axiom that failing to plan is planning to fail.
If you own property, you have an estate plan whether you like it or not. Owning property jointly with another individual with rights of survivorship will cause the ownership of the property to transfer to the joint owner upon your passing. If the title and/or beneficiary designations for real property, life insurance, and retirement benefits (usually the most valuable assets in most estates) have changed you should re-evaluate how those changes will impact your current plan.
Family as Fiduciary and Beneficiary
The quality of relationships with certain family members who play important roles can cause your estate plan to evolve. Being an Executor, Trustee, Health Care Proxy, or Power of Attorney is not an easy task when the time comes. Even beneficiaries of an estate fall under scrutiny in terms of their ability to receive property. Family members bestowed with the above fiduciary obligations in an estate plan or beneficiaries should be constantly assessed. During the re-assessment, you should ask yourself, have those family members or trusted advisors exhibited characteristics such as youth, disability, or a spendthrift attitude that would have you question your current plan?
Another important aspect that can be glossed over is the citizenship or geographic location of the people involved in your plan. If you have appointed a child, for example, as your Executor and that child has moved out of New York State, the Surrogate will impose limitations such as a bond on an out of state Executor. Citizenship and geographic location should always be evaluated.
It is prudent to review your financial information not only with your financial advisor but with your estate planning attorney if you experience any drastic changes. If your assets, such as the value of your business, or the discovery of an inheritance/power of appointment serves to alter your total net worth it is prudent to discuss how these changes affect your current plan. Sometimes professional appraisers are necessary to ascertain accurate information to plan effectively for estate and income taxes. These changes may affect your overall goals depending upon how the current distribution of your property has been established along with other goals such as tax minimization.
Impact of New Laws
The passage of new laws, both Federal and in New York State, could have had an impact on your estate plan already. For advanced directives, such as a Power of Attorney and Health Care Proxy, there are important years to keep in mind. If your Health Care Proxy was executed prior to 2003, your Proxy may not have the appropriate language to allow your agent to access information within the rigid strictures of HIPAA, which imposed strict privacy and confidentiality rules for access to medical information in 2003.
If your Power of Attorney was executed prior to 2009 there is the possibility that your Power of Attorney does not allow your agent to make gifts. New York State law imposed the additional requirement of executing an addendum known as a Major Gifts Rider that is necessary for your agent(s) to make gifts. This can become especially important if there is a need to transfer/gift your assets in conjunction with a Medicaid plan to preserve your assets from the cost of skilled nursing care.
If your Will was drafted prior to April 1, 2015 there is the possibility that your estate plan has been altered by the evolution of federal and state estate tax laws. In 2005, Congress passed the Economic Growth and Tax Relief Act ("EGRTA"). EGRTA phased out the previous state death tax credit so that state estate or inheritance taxes apply on top of any federal estate tax. In 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 ("TRA 2010") was passed by Congress. TRA 2010 increased the federal estate tax threshold to $5 million for 2010 and indexed it to inflation for every year after that. In 2015, the federal estate tax exclusion amount is $5.43 million. If your Will or estate planning documents contain provisions for previous tax thresholds, TRA 2010 may produce unfavorable results for the plan that you have in place.
Most recently, Congress passed the American Taxpayer Relief Act of 2012 ("ATRA"). ATRA allowed for portability amongst married couples. Portability means that between a married couple, $10,860,000 ($5.43 million x 2) can pass free of federal estate tax. This alleviates the need in many cases to create "credit shelter" or "bypass" trusts that would not be a part of the surviving spouse's estate. The inclusion of these trusts in an estate plan was previously meant to save on estate tax, but there are negative consequences in terms of capital gains that are unnecessary if the trusts do not need to be established for estate tax savings.
The April 1, 2014 New York State Budget ("2014 Budget") also changed the landscape for many people with respect to New York State estate tax liability. The 2014 Budget established an annual escalating estate tax. As of April 1, 2015, the New York State estate tax threshold is $3,125,000. By January 1, 2019, the New York State estate tax threshold is scheduled to be the same as the federal estate tax threshold, estimated with inflation to be $5.9 million. New York State has also instituted a gift tax in the 2014 Budget. These changes, for similar reasons to the passage of ATRA, can have a significant impact on an estate plan.
How Can We Help?
Our Trusts and Estates attorneys’ goal is to help preserve our clients’ accumulated wealth by providing appropriate planning. Our attorneys have a broad range of skills and experience to assist families in the area of asset protection and management, minimization of taxes and disposition of wealth.
If you don't have a will, or if it's been a while since you reviewed your estate plan, you may wish to contact one of our estate planning attorneys to schedule a consultation to review your current plan, to ensure that it reflects your values, concerns and intended beneficiaries. We would be happy to assist you with that process. Call Dan Williford or Mike McConville to set up an appointment to consult about this priority.
This publication is intended as an information source for clients, prospective clients, and colleagues and constitutes attorney advertising. The content should not be considered legal advice and readers should not act upon information in this publication without individualized professional counsel.