Dusting The Cobwebs Off That “Old” Estate Plan
Estate plans aren't created to be current throughout your lifetime. When drafted, they are based on the current climate of the estate tax laws and your own circumstances, with some flexibility built in. The changing legislative, economic, and social times can have more of an effect on your existing estate plan than you think. That is why if you have not already done so, you should "dust the cobwebs off" that plan and have it reviewed for continued applicability and effectiveness. Now, I am not suggesting that you pay an attorney a few hundred dollars every year to have your plan checked. Below is a non-exhaustive list of when you should bring out that dusty plan:
- After or in contemplation of major life changes, such as divorce, marriage, remarriage, or the birth of a child. Ensure that the correct beneficiaries are inheriting your property. Avoid undesirable consequences such as your ex-spouse inheriting your estate, a child being omitted from inheriting from your estate, or your new husband inheriting all your assets to the exclusion of your children from a prior marriage or vice versa.
- Economic downturn or upswing. Changes that affect the value of your estate significantly could produce disastrous results without appropriate planning. Your surviving spouse might be left with less available funds than you would like because your estate plan includes an A/B trust split at the first to die and your estate is not significant enough to handle the split. Or you can incur a massive estate tax because your estate ends up being worth more than the exemption amount and your estate plan does not have sufficient tax planning.
- Changes in the estate and gift tax laws. The estate and gift tax arena is ever-changing and therefore lacks predictability. Estate plans cannot be created to fully contemplate those changes. The most recent example of this unpredictability came at the end of last year when certain aspects of the estate and gift tax were to revert back to what it was prior to 2001. Instead, in late December of 2010, Congress changed the laws by increasing the amounts of the estate, gift and generation skipping exemptions, lowering the effective tax rate to 35%, giving portability of unused exemption amounts to spouses (this didn't even exist prior to 2001), and giving people dying in 2010 the choice of basis rules they'd like to have apply at the time of death. (These rules are too complicated to be fully discussed here. See my "Update to Estate and Gift Tax" post for an explanation of some of these changes). The best or worst part of all this is that this current rule change is a temporary fix until the end of 2012. In 2013 we are supposed to see the estate tax revert back to its pre-2001 state.
- You or a family member is contemplating the need for nursing home or assisted living care. You, your spouse, or your parents are nearing the age where they might need to be placed in the nursing home and Medicaid and/or MediCal might be needed. Contacting an elder law attorney to review your current plan early enough can help you qualify for the services you or your family member need instead of spending all your life savings and leaving nothing but debt for your family.