I often meet with people who completed their estate plan 10 years ago, and they question if they ever need to review their plan. Clients often think, “Hey, I did it once; I am done.” Then they either put it in their safe or safety deposit box (a few place it on top of the fridge) and let it gather dust — out of sight, out of mind.
Are you driving on the same tires you were 10 years ago — or even in the same vehicle? Like your vehicle, your estate plan needs to be maintained and sometimes updated. Frankly, it is unrealistic to expect the trust you drafted years ago, which reflected your life during that period of time, will accomplish all your goals when your life may have significantly changed. To help gain some perspective on what can happen in the span of 10 years, meet Dean and Rita Johnson.
Dean and Rita were high school sweethearts and have been married for 35 years. Dean is a third-generation farmer and loves spending his days on the farm. Rita is also a farmer; she helps Dean and loves a good day in the tractor.
Dean and Rita created their estate plan 30 years ago after the birth of their son, Charles. A few years later, they welcomed a daughter, Anna, to their family. They visited with their estate planning attorney and updated their plan shortly after Anna’s birth.
Another decade later, they attended an estate planning seminar and read a few articles about estate planning. They decided to go ahead and get a trust put into place that better protected themselves, the farm, their children and their dog, Buster. Unfortunately, the trust went in the same place as their last estate plan (on top of the fridge), and they did not think too much about it over the next 10 years.
Now they are in the next decade of life. Charles and Anna have graduated from college. Charles is working on the farm with Dean, and Anna is working in town as a nurse. Charles is married and has three children. One of his children has autism. Anna is also married and expecting her first child. Dean and Rita bought a lake cabin in a neighboring state where they have had many wonderful summer gatherings. Dean’s father also passed away, and he has been helping support his mother.
Do you think their estate plan will still accomplish all of the goals they had when their family consisted of a 10-year-old and a teenager?
What about you?
Think about the changes in your life over the last 10 or so years (or since you have last updated your estate plan). Do you still live in the same home? Do you have any more children? Grandchildren? Do you have a beneficiary with a disability? Do you have new accounts or investments? Do you have a health diagnosis? Has your net worth changed? Have you been divorced or remarried? Have your children? Has a loved one died? Do you care for your parents or dependents? Do you have a realistic plan in place to ensure your “Charles” can continue farming in the event of your disability or death? Is your land protected from creditors and the nursing home? Are your assets titled to follow your estate plan? Do you want to help with your grandchildren’s education? Is your world the same?
Estate plans are created to fit your family and your goals, but just like your family, your goals may change over time. If your child will need access to certain property to maintain his or her livelihood after you pass away or become disabled, simply dividing everything equally or structuring an unrealistic purchase option may not serve your family well. If you have a child or grandchild with a disability, they may be ineligible for government programs if they inherit in a certain manner through your estate. If you have not titled and placed the proper beneficiary designations on all of your accounts and investments, your estate may not follow your plan and you may accidentally trigger a probate. If you want your home or lake cabin to stay in the family, you will need to provide specific terms in your plan. These are just a few of the changes in Dean’s and Rita’s lives that greatly impact their estate plan.
Not only has life changed for Dean and Rita (and you) over the past 10 years or so, but so has the law. For example, the federal estate tax exemption in 2006 was $2 million and any assets an estate had in excess of that amount incurred a 46% federal estate tax. In 2009, the federal estate tax exemption was $3.5 million and any assets an estate had in excess of that amount incurred a 45% federal estate tax. Today, the federal estate tax exemption is $5.45 million and any assets an estate has in excess of that amount incur a 40% federal estate tax. These changes in federal law often have a significant impact on your estate and business succession planning.
Don’t leave your estate plan on top of the fridge. Take it with you when you visit a qualified estate attorney who can review your plan, listen to your goals and tell you if your plan still fits your ever-changing life.
Harris is an attorney at Thompson Law, P.C., Sioux Falls, S.D. Contact her at 605-362-9100 or see cathompsonlaw.com.