Welcome 2019! This is a year filled with promise: The motivation to take better care of yourself, the serenity to find that elusive work-life balance, and the organized plan that empowers you to realize your dreams.
You’ve hit the gym, spent quality time with your family, and purged your closets. Now it’s time to take a look at your estate plan!
1. Make a Trust and/or Will
If you’re like most Americans, may not have a trust or will. You may not even know what these documents are. How are they different? Which is better? Which is right for you?
Both a trust and a will determine who receives your assets after your death. A trust is designed to avoid court proceedings, but a will often guarantees probate.
2. Execute a Power of Attorney and Advance Health Care Directive
Many people think that estate planning is about their family. It is! But it’s also about you. Who will take care of you if you become incapacitated?
A power of attorney designates a trusted agent to make decisions for you. For estate planning purposes, you should have a durable power of attorney for property management and personal affairs. This document grants broad authority to access otherwise private information and make financial decisions on your behalf.
An advance health care directive allows you to appoint a health care agent to make your medical decisions. California’s advance health care directive allows you to state your wishes for end-of-life care (also called your “living will”). You can also state your preferences for organ donation, burial or cremation, services, and much more.
A power of attorney and advance health care directive are some of the most important estate planning documents you can have.
3. Minimize (or Avoid) Estate Taxes
The Internal Revenue Service (IRS) recently announced that the federal estate and gift tax exemption increased to $11.4 million in 2019. While this figure is sufficiently high to shield most estates, it is important to note that estate tax laws can (and historically do) change.
California does not impose a state-level estate tax or inheritance tax. If you have ties to other states or nations, be sure to inquire about their laws.
One of the most common ways to reduce an estate is to give it away. You can give up to $15,000 to as many people as you want each year without filing a gift tax return. Before making a gift, though, consider the risks: 1. You cannot take the gift back; 2. Without special planning, you cannot control how the gift is used or protect the recipient from creditors; and 3. The recipient takes your “carryover basis,” losing the opportunity to enjoy a “stepped-up basis” inherited at death. Gifting should be done carefully, with the advice of experienced advisors.
4. Review Asset Titles and Beneficiary Designations
If you have a trust, you must “fund” the trust so that it will work as intended. Simply signing a trust will not avoid probate.
“Trust funding” refers to the process of transferring assets from your individual name (e.g., “Jane Doe”) to the name of your trust (e.g., “Jane Doe, Trustee of the Jane Doe Revocable Trust”). If an asset is not titled in the name of your trust, and the asset does not designate the trust as beneficiary, it may be subject to probate at the time of your death.
Reviewing title is still important if you don’t have a trust. Assets titled in joint tenancy with right of survivorship, or which designate a beneficiary as part of the asset’s title or contract, may avoid probate. Those designations may also have unintended consequences. Beneficiary designations and contract terms can override the wishes expressed in your trust or will.
When is the last time you reviewed your beneficiary designations? If you’ve had a change in marital status, welcomed new family members, or said goodbye to loved ones, it’s important to review your estate plan to confirm that your assets will pass to your intended beneficiaries. If your children have grown up, it may be time to remove continuing trust provisions. If your parents have aged and are now dependent upon Medi-Cal, special plans should be made to protect the benefits to which they are entitled.
5. Inventory Your Assets and Debts
When you die, how will your family members and friends know where your assets reside? How will they know what you owe? Perhaps the greatest gift you can leave behind is a current inventory listing all your assets and liabilities. Don’t forget your Internet accounts.
You may also want to make a written list of personal effects, jewelry, and sentimental belongings and decide who you want to have them. To make those gifts legally effective, you should include them in your formal estate planning documents or refer to the written list in your trust or will.
6. Write a Letter of Instruction
No matter how well you plan, administering an estate can be a tough job. If you died today, what would you want to tell your loved ones? Pick up your writing utensil or type out instructions and leave them with your estate plan documents. You can greatly ease the burden carried by your loved ones if you leave them detailed, step-by-step instructions.
There is no right or wrong format for such a letter. At a minimum, though, consider including what estate planning documents you have, where the original documents are located, what assets and liabilities are involved, and who may be contacted for support.
7. Hold a “Fire Drill”
Pretend you have died. Walk your family members or friends through the process of everything they must do to settle your affairs. This is the perfect opportunity to answer any questions and resolve disputes that might otherwise plague your legacy.
8. Preplan Your Funeral
Funeral arrangements are one of the most overlooked aspects of estate planning.
A well-crafted estate plan should make your estate as easy as possible to administer. This includes the disposition of your remains and your final remembrance. At the very least, let your survivors know whether you want to be buried or cremated. You can also specify what kind of service you prefer, provide a budget, and even draft your desired obituary.
Most funeral homes allow you to pre-plan and/or pre-pay for your arrangements. You may end up signing a lot of documents, including life insurance policy or trust papers related to your contract. If you have any questions about these documents, you should consult with an attorney.
While planning your death may be challenging, you can take an onerous and often painful burden off your loved ones.
9. Review Your Estate Plan With an Attorney
Estate planning can be a complex and confusing subject. These new year’s resolutions are a great place to start, but there is no “one size fits all” solution. After reading this post, you may still be unsure what estate planning documents you should have or whether you need to make any changes to your current plan.
There’s no need to procrastinate! I am just a phone call or email away.
[Disclaimer: The contents of this article are not provided in the course of an attorney-client relationship. This article is not intended to constitute legal advice. The user should obtain legal advice from a competent attorney in his or her state.]