When was the last time your Will, each account’s registration, and beneficiary statements were reviewed? Life events do impact estate planning; and unless a review has been made, surprises may lurk somewhere in your holdings.
If you are like most individuals, the last review occurred when the Will was updated or written. Which means it may have been several years since a comprehensive review has taken place. In this case, it may be time to confirm your accounts are structured as they need to be for your estate plan to work as designed.
It is not uncommon for a couple to obtain a new Will or Living Trust; and, once these documents are signed believe their estate plan is now in good order. Most likely the attorney assisting you also provided instructions for you to make sure your assets are properly titled. In years past, this process was often done by the law office; but as fees continued to climb as well as other reasons, this step is no longer part of their service. And, it is now your responsibility to make sure accounts are updated and beneficiary statements modified.
Many of the life events that impact an estate plan are obvious such as marriage, divorce, birth of a child, and death of a close relative. But, there are other factors that may also have an impact. These can be one or more of your children becoming of age, a significant change in your personal net worth up or down, the loss of a job, medical needs of a family member, a change in ambition of a child, financial success of one child compared to the financial needs of others, or your personal wishes and desires may have changed. An event of these occurrences as well others not listed can create the need to modify an existing estate plan or for a plan to become ineffective.
It may be time for a financial fire-drill. As a child, most of us practiced the escape route from our school classroom, so we knew what to do if a fire did occur. The same can be said for a financial fire-drill. You can do a drill on several different events occurring, but the most common will be a death. You test the steps and the outcome in the event of your premature death. If you are married, you should determine what would occur in the event of your own death and then of your spouse.
To do this properly, you will actually need to read your Will or Living Trust to determine what to do. You will also need to list all of your financial assets and determine whether or not they are under the control of the documents or of a beneficiary clause. This is where most of the problems may be discovered. The beneficiary instructions should be confirmed for each account as well as life insurance policies. For taxable accounts and real estate, the registration or deed should be reviewed to determine how the accounts are titled. This will shed light on how each asset or account will be handled in the event of a death.
It is not uncommon for new bank and investment accounts to be opened; and generally for couples, these are titled JTWROS, meaning joint tenants with rights of survivorship. But, this also means the assets in these accounts transfer upon death to the surviving tenants without regard to the instructions that may exist in a Will or other documents. Thus, if the estate plan requires the funding of a trust or has other special instructions, it may be impacted inadvertently by the new registrations.
Another reason to review the estate plan is to determine whether a minimal tax impact is achieved. Today, retirement assets as a percentage of the estate continue to increase. While this has significantly reduced the income tax liability during working years, it adds to the complexity in many cases of the estate design. If you have charitable wishes in an estate plan, these should also be reviewed from time to time to insure the best methods are being used to minimize the tax impact and maximize your gifts.
The financial fire-drill should be documented and filed with your estate plan. This will permit your executor or trustee to have a better understanding of the documents and the location of all of the assets. Once you have completed the fire-drill, the next drill most likely can be done in two or three years. That is unless one of more of the life events has occurred.
If you are not sure how to move forward, locate an area CERTIFIED FINANCIAL PLANNER™ (CFP). These individuals have received the training to assist in this process. For questions on this topic or any of the others I cover in the articles, please contact me at Quality Financial Concepts.
HOW TO REACH THE WRITER
Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.
Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.
Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.