Resolution: Keeping the Estate Plan Updated

President Harry S Truman

“You can always amend a big plan, but you can never expand a little one. I don’t believe in little plans. I believe in plans big enough to meet a situation which we can’t possibly foresee now.” Harry S. Truman

As the new year approaches, it is a good time to update estate plans , or at least plan to update them.  But the recent tax law changes may become an excuse to put those plans aside.  Harry Truman reminds us that future uncertainty is no excuse for procrastinating.
The new tax law does add to the uncertainty.  The act provides that individual income tax rates will remain at 10, 15, 25, 28, 33, and 35 percent, but only for two years. After two years rates, will increase respectively to 15, 28, 31, 36, and 39.6 percent. The estate tax will now apply only to those estates valued at more than $5 million and the tax rate will be 35% for the next two years. But after two years, unless Congress takes further action, all estates valued at $1 million or more will be taxed and the maximum rate jumps up to 55%.

An eleven page summary of the Act, together with analysis, charts and tips has been provided by CCH and is available here. Thanks go to the Wills, Trusts and Estates Prof Blog for bringing this summary to my attention.

Harry Truman criticized quick fixes and little plans. By creating further uncertainty, Congress has invited everyone to postpone their own long term planning as well. We might as well put off planning since we can’t predict what will happen two years from now, right? Wrong. Delaying personal estate planning simply passes problems on to heirs. I know, there is precedent for passing problems to grandchildren, but individually it is not difficult to have a big positive impact, particularly because incomplete, out of date, unfinished estate planning can create problems that far outweigh the effort required now. The temporary two year fix for estate tax and income tax rates is no excuse to put off updating estate plans during that time.

As the new year approaches, it is a good time to review existing estate plans. Pull out the documents. Determine if they still reflect current wishes. And if any of the following circumstances have arisen, it is time to take steps to update the existing plan.

  • Changes in Beneficiaries

Among the many possible reasons for changes here, if a beneficiary has become incapacitated, adding provisions for a special needs trust to an existing estate plan could be a great benefit.

  • Trustee Changes

If the trustee, guardian, administrator or other fiduciary has moved, passed away or has become unwilling to serve, a change is required.

  • Marital Status

It is surprising how frequently people fail to update their estate plans after divorce or marriage. The divorce or marriage of a beneficiary would also be a reason to make sure the plan is up-to-date.

  • A New or Family Business

Is there a possibility that family members will want to continue in the business? Business succession planning should be considered as part of the overall estate plan.

  • New Investments

Have you acquired property that needs to be added to a trust? Have you acquired property in another state? Updates may be needed.

  • Changes in the Law

Should this new act be a reason for updates? The Tax relief Act has introduced a change, known as portability of the estate tax exemption, which impacts the structure of existing trusts. Each person is entitled to a five million dollar exemption which can now be transferred for the benefit of the heirs of a surviving spouse without the necessity of bypass trusts (also known as AB trusts). There are other reasons for having a bypass trust besides estate taxes savings, so portability does not render bypass trusts useless by any means. Whether existing bypass trusts should be amended because of portability will vary on a case-by-case basis, so it is at least a subject on which further clarification should be sought from a qualified professional. In addition, a future post will address portability and the tax law changes in greater detail.

This is an intentionally brief discussion of updates.  More information is available here

Keeping an estate plan up-to-date is as small cost compared to the benefit it will provide to heirs in preventing future uncertainties and disputes that may arise after we are gone, when it is too late to act.

Creative Commons License photo credit: Chuck “Caveman” Coker

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