How to Review Your Estate Plan: A Step-By-Step Guide

A once-a-year review can go a long way in ensuring that your estate plan is up-to-date. Many financial advisors recommend that their clients review their estate plans annually, and often assist in the review. I try to send letters to my clients each year reminding them to review their estate plans, and I typically get a couple of notes in response thanking me for the reminder, and a few requests for assistance in making changes. But the response rate is pretty low, and I often wonder how many of my clients are doing any sort of review at all.

Recently a client who had received my letter left me this voice message:

Kevin, this is Bob. I got your letter about reviewing our estate plan. Thanks for sending it. I've got my Will and Trust and other stuff here but I don't know how to review it. Would you call me and tell me what I should be looking for?

His message hit me like a freight train. All these years I've been telling my clients to review their estate plans, and suddenly I realized that the suggestion is wholly inadequate. Most of my clients are no better equipped to review their estate plans than I am to inspect the HVAC system in my house. So I sent my client these step-by-step instructions.

It is important to understand, first and foremost, that it is your responsibility to keep your estate plan up-to-date. The lawyer has a definite role to play, but only at your invitation. I will give you some suggestions below about when your lawyer should be included in the review process.

Your Will and Living Trust

You should begin your review by reading those parts of your Will and Revocable Trust, if you have one, that identify the beneficiaries who would receive your property after you have passed away. For most people this is the spouse and children, and may also include parents, other relatives, friends and charities. Be sure that you still want these beneficiaries to receive your property.

If you left any beneficiary's inheritance to him or her in a trust fund, you should review the terms of that trust to be sure that they still are appropriate. Many parents will establish trust funds for their children so that the children would receive their inheritances in staggered distributions such as at ages 25, 30 and 35. As the children get older, some parents wish to extend those distribution ages, for instance to 35, 40 and 45. On the other hand, some parents are blessed with exceptionally responsible children and decide that no trust fund is needed at all.

Next you should check the people who you have nominated to perform certain duties after you have passed away. The typical positions are:

· Personal Representative or Executor. The Executor's job typically lasts six months to two years. He or she is responsible for submitting your Will to Court, gathering your assets, paying your debts, filing your final income tax returns, filing your inheritance and estate tax returns, and distributing your property to the people you have identified to receive it under your Will and Revocable Trust.

· Trustee. If in your Will or Revocable Trust you have directed any person's inheritance be held in a trust fund for him or her, then the Trustee would be responsible for holding the trust property, investing it, making distributions to the beneficiary at the times and under the circumstances as directed in the trust instrument, and keeping accurate records with respect to the trust property. This job could last anywhere from a few years to many decades and even for multiple generations, depending on the specific terms of your trust.

· Guardian. If you have children who are under age 18, then in your Will you probably nominated someone to serve as the guardian for those minor children. The guardian's job is to step into your shoes as a surrogate parent; to take the children into their home; to love and care for them; and to raise them. Be sure that the person you nominated as guardian still is fit for that role. For instance, if you named your parents as guardians for your children, you should consider whether they are young enough to serve effectively.

· Power of Attorney. Your documents likely include a general power of attorney, in which you identify a person to act as your agent to assist in handling your business and financial affairs in case you become ill, or are in an accident, or for any other reason are unable to handle those things yourself. Be sure that the person you have identified as your business agent or attorney-in-fact still is appropriate. If that person is your spouse, then you also should name an alternate attorney-in-fact in case you and your spouse are injured in the same accident.

· Health Care Representative. Your documents also likely include an appointment of health care representative, in which you appoint someone to assist in making medical decisions for you if you are not able to make those decisions for yourself. Again, if you have nominated your spouse then you also should identify a successor or backup health care representative.

· Living Will. Many people have living wills. This is a non-binding document that expresses your desires with respect to life prolonging procedures. You should read it to be sure that it reflects your current intentions.

Property Not Controlled by Your Will or Revocable Trust

It is a common mistake to believe that if your Will is in order, then your estate plan is in order. In fact, your Will is just one component of your overall estate plan. In most cases, the Will controls the disposition of some but not all of a deceased person's property. Other property, like life insurance policies, retirement plan accounts, and commercial annuities are controlled by beneficiary designations. As you review your estate plan, you should check all of those beneficiary designations to be sure that they are complete and consistent with your overall estate plan.

Jointly owned property also might not be controlled by your Will or Revocable Trust. If you and another person own a parcel of real estate together, or joint bank account or joint brokerage account, then when you die the other owner might acquire full title to the real estate or account. You should consider if that is what you intended when you acquired the property, and if not then you should ask your lawyer for help in structuring the ownership of the property in a way that would allow each owner to dispose of her or his portion of the property under her or his estate planning documents.

If you have named a transfer of death (TOD) or pay on death (POD) beneficiary on a bank account, brokerage account, or other property, then on your death that account or property would pass to the named TOD or POD beneficiary and would not be disposed of under your Will or Revocable Trust. In some cases, this can have disruptive consequences. Most people who have a complete estate plan do not need to name TOD or POD beneficiaries. If you have POD or TOD beneficiaries, then you should confirm with your lawyer that these are properly coordinated with your overall estate plan.

If you have had a major "life change" since you signed your estate planning documents, then you should have your lawyer review your estate plan to be sure that it is still suitable. For instance, if you have been married or divorced; if you have moved to a different state; if you have acquired significant wealth or lost a good portion of your wealth; if you have sold a business or become an owner of a business, then your entire estate plan should be reviewed by your advisors.

Taxes

You probably know that the federal estate tax rules have been in a state of flux for several years now. As recently as 1999, the estate tax exemption amount (the amount a property that a deceased person could pass to her beneficiaries without paying any federal estate tax) was $600,000. Since then the exemption amount has increased almost six-fold to $3,500,000 today. If your estate planning documents include provisions intended to minimize estate taxes, and if your estate plan is more than a couple of years old, then you should consult with your lawyer to see if those tax clauses are still appropriate. On the other hand, if your estate planning documents do not include any estate tax-related provisions and your wealth has increased, then you should ask your lawyer to see if estate tax provisions should be added to your estate planning documents.

Retirement Accounts

If you hold a good portion of your wealth in retirement plan accounts, then it might be important to include technical provisions relating to the handling of your retirement plan accounts in your Will or Revocable Trust. In 2000 the IRS published new regulations about how benefits from retirement plan accounts are to be paid after the account owner's death. Those rules have been further refined over the last nine years through IRS rulings, court opinions, and good lawyering. If this issue is important to you, then you should discuss it with your estate planning lawyer.

Life Insurance Policies

Life insurance is an important component of many estate plans. Life insurance proceeds often constitute a significant part of the wealth that passes to a decedent's family, so it is imperative that the manner in which the policies are owned and the way the beneficiary designations are completed are properly coordinated with your overall estate plan. The brevity of the standard beneficiary designation form sometimes lulls people into believing that naming a beneficiary is simple. But there may be gift, estate, and income tax issues to consider. And most importantly you want to be certain that your insurance proceeds will go to the right beneficiaries, at the right time, and under appropriate circumstances. Your lawyer can help you do this properly.

If you find issues that you want to discuss with your financial advisor or lawyer, you should be prepared to give her or him copies of your existing estate planning documents along with a personal financial statement that shows all of your assets, how much each is worth, and how each is owned (either in your name alone, or jointly with another person). You also should give your advisors copies of the beneficiary designations for your life insurance policies, retirement plan accounts, and commercial annuities, or at least confirm that those are complete and what they say. In any event you should have a lawyer review your entire estate plan at least every three years.

If you have questions about estate planning, you can contact Kevin Alerding, partner in Ice Miller's Personal Services, Trusts and Estates Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.