Most people I talk with say, "Yeah sure, I've got an estate plan. I'm all set." Over the years, I have found that most folks are wrong about this.
The reason is simple. Estate plans are often pretty complex. They involve assets that can change in value – sometimes dramatically – over time. They involve family relationships and priorities that can change as a family evolves.
So, it's a good idea to review the estate plan every few years, or any time a situation changes for one of the key parties to the plan.
In the next two weeks I'll give you some key questions to ask as you review your estate plan.
1. How big is the estate? What is the value of the business, the property, investments, and retirement accounts? Do you really know the value of the property and the improvements? The federal estate tax limit is $10.5 million but many states have lower limits.
In Minnesota, for example, the state limit is $1.2 million. (That's about 240 acres of very average Minnesota ground based on a $5,000/acre average using data from the 2014 Minnesota Extension farm real estate sales report.)
2. Which of your assets are set to pass outside the will or probate? Some assets have beneficiaries clearly established and will pass, quickly, easily and privately to the heirs. Others require probate. Probate is a public process, and usually takes at least 6 months; it will create legal fees that can possibly amount to five figures.
3. Who should be the executor? The role of executor is complex and it's important to a smooth transition process. The executor needs to identify the assets and manage them responsibly during the transition process. The executor must file the estate tax return and dispose of estate assets fairly and promptly.
Sometimes, this process can require a lot of effort and take several months. Be sure the executor you choose has the time and energy to deal with the entire job. Sometimes, it's appropriate to select a professional entity for this job to see to it that things are done right.
4. Are any heirs minors or disabled? If your heirs include minor children or disabled children or adults, you will need to appoint a guardian. The decision surrounding who will raise a child or care for a disabled adult in your absence is one of the most important estate planning decisions you'll make.
For some parents, a sibling or grandparent is the most appropriate choice. For others, a close family friend may work best. For complex estates or in a situation where a significant amount of money will be distributed through the estate, it may make sense to name two guardians, one with the responsibility for disbursing the money and the other who will be responsible for caring for the child or children.
In the case of a mentally or physically disabled person, a special needs trust can protect the heir while providing funds to supplement government benefits. Such trusts can be set up to ensure that the child will continue to be qualified for government benefits while providing for other needs that aren't covered by Medicare, Medicaid, or Social Security disability.
The trust can be funded in a variety of ways, potentially with money from parents or with the beneficiary's own assets, perhaps from an accident settlement or lawsuit. Regardless of how the trust is funded, engaging an estate planning attorney with expertise in such vehicles is critical to protecting the needs of the child or adult.
5. Who should be a trustee? If your estate plan involves one or more trusts, the appointment of a trustee or multiple trustees is a big decision. While executors have significant responsibilities, their tenure is limited. A trustee's responsibilities can be more involved and last longer, perhaps even a lifetime.
When deciding who to appoint as a trustee for your estate plan, look for an individual or professional who is competent, has the ability to act in the best interests of the beneficiaries, has no conflicts of interest and who has the availability and interest in assuming this role.
If your estate is complicated or large, it may make sense to appoint an institutional trustee along with an individual trustee. An institutional trustee can provide important expertise in tax and investment matters.
A knowledgeable attorney should be consulted to review an estate plan periodically or to formalize one if you don't have one currently.
Next week we'll talk about gifting in an estate plan, special circumstances and advance directives, among other things.
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.