It’s a new year – what are your resolutions? If one of them is to update your estate plan, here are five questions to ask yourself:
First, take stock of your assets. With tax time quickly approaching, make a list of your investments, real estate and business holdings, and other assets. Do you know the fair market value of each? How is each asset owned – in your name or through an entity? Knowing the nature and extent of your assets will help your financial, tax, and legal advisors assist you in formulating your best plan. By the way, are your business holdings owned by you in your individual name or in a limited liability company or corporate structure that provides protection to you?
Second, take some time to think about your family structure, e.g., your health and the health of your spouse, children’s and grandchildren’s ages, employment status, educational and health needs. What steps should you take to ensure your needs are met as you get older? If there’s anything left when you’re gone, how can you best provide for the needs of your loved ones, and how much control must you exert from the grave? A trust may be necessary to provide for a young beneficiary or for a family member with special needs. A beneficiary may have problems with creditors, and a trust can help protect assets. On the other hand, should the share passing to your spouse or adult child continue in trust, or is an outright distribution more appropriate?
Third, what are your priorities? Perhaps your greatest wish is to make things easy for your family by minimizing the expense and delay of a probate administration. Perhaps you want to preserve assets for your beneficiaries who are not as financially savvy or successful as you. You may want to avoid taxes or benefit charity. Having a will is the first step toward all of these goals; without a will, your assets will be distributed in accordance with state law. Why not specify how you would like your assets to pass: outright to your children or in trust, over how many years, in what proportions.
Fourth, your retirement plan assets may comprise a significant portion of your net worth. New federal legislation passed at the end of 2019 reduces the length of time over which certain beneficiaries can take minimum distributions. Your spouse can still roll over the plan to his or her own in most cases, but your adult children (and minor children once they reach majority age) will have 10 years. You may need to consider alternatives to naming your children as beneficiaries; accumulation trusts and charitable remainder trusts might be options. Naming a charity as a beneficiary of some portion or all of your retirement plans remains an excellent planning tool if you are at all charitably motivated.
Finally, who are your fiduciaries? Who is best suited to wind up your affairs at death and to manage a trust for your spouse and/or children? Have you considered whether a corporate trustee makes sense for your particular family and financial situation? Who will take care of your minor children? If you are a grandparent, who will manage funds passing to your minor grandchildren? Have you considered what will happen if you are no longer competent to manage your financial affairs? Take time not only to select trusted friends, family members, or institutions to fill these roles but also to speak to the proposed representatives.
The start of a new decade is the perfect time for a financial wellness check, which includes your estate plan. If you’ve identified at least one item that needs attention, reach out to your advisor and start a dialogue.
Susan Bock, Of Counsel at Stoel Rives, counsels clients in the administration of estates and trusts, as well as estate, corporate, tax and financial planning. Susan’s law practice includes advising clients in the areas of income, estate, and gift taxes, counseling trustees and beneficiaries, charitable planning, international estate planning and trust administration, and working with families and closely held businesses to achieve business succession planning and the creation of small family businesses.