Every spring my dad would take the family car in for a tune-up. He would always tell me that by fixing minor issues during the tune-up he was preventing major problems down the road.
My dadís insight also applies to estate planning. Now is a great time to take your estate plan in for a tune-up, especially if youíve recently gone through a major life change whether itís getting married, welcoming a child into your life, or any other life altering event. Addressing issues with your estate plan now will help prevent major headaches in the future.
Below are some areas that should be examined during your tune-up:
Wills and trusts
If you already have estate planning documents, chances are you have a will or a revocable trust type plan. For those of you who donít know, a will is a document that dictates how your assets are to be distributed upon your death. Itís important to keep in mind that some assets are not distributed through your will. For instance any property held in joint tenancy, assets such as life insurance or retirement accounts where a beneficiary has been designated, or assets held in transfer on death accounts (which are explained below).
A revocable trust (ďtrustĒ) is a different type of instrument. When a person, known as the grantor, creates and funds a trust, it, rather than a will, becomes the grantorís primary estate planning document. Typically the grantor is the initial trustee, who has discretion to make distributions from the trust at any time, just as if the person owned the assets outright. However, if the grantor becomes incapacitated, or dies, a well drafted trust will provide for a successor trustee to assume responsibility for the assets and administer and/or distribute them in a private and efficient manner. One of the primary advantages of a trust is that it can allow the successor trustee to administer and distribute the trust assets without the involvement of a probate court, which saves time and money for the recipients of the trust assets.
Whether a person has a will or trust type estate plan, the applicable document should provide for the establishment of a trust for any minor children beneficiaries.
During your tune-up a review of your estate planning documents can help you see if an update is warranted. Did you want to name new beneficiaries? Should you name a new executor (the person in charge of the administration of your estate) in your will? Should you name a new successor trustee? If updates are needed to your will or trust, contact an attorney and work with them to make the appropriate modifications.
Transfer on death accounts
Many investment and bank accounts are transfer on death (TOD) accounts. In other words, after the account holder passes away, the assets in the account pass directly to the named beneficiaries. A TOD account passes outside of probate. So, if beneficiaries are listed for a TOD account, the assets in the account will pass directly to the named beneficiaries.
If a TOD account is owned by an individual and there are listed beneficiaries, then a will or trust has no bearing on how assets from the account are distributed. Revisiting who youíve listed as beneficiaries for your TOD accounts is essential after a major life change. If you decide to change your beneficiaries you should contact the financial institution where the account is held.
Powers of attorney
There are two types of powers of attorney, one for health care and one for property. When powers of attorney are drafted, individuals are named as an agent and successor agents. An agent will make decisions on your behalf if you become incapacitated and unable to make decisions for yourself.
Reviewing your powers of attorney during your tune-up is a good idea. Are the people listed as your agent and successor agents individuals that you still want to serve in that capacity? If you would like to make changes to either of your powers of attorney you should contact your lawyer.
Communication with loved ones
The last item in your tune-up is the easiest, yet one of the most overlooked. Be sure to let your loved ones know where you keep your estate planning documents. In most states, if your will or trust cannot be found, itís treated as if you passed away without a will or trust. This can be avoided by simply letting your loved ones know where your estate planning documents are kept.
Taking your estate plan in for a tune-up will help you identify issues that might cause problems in the future. After a simple review itís often apparent that your estate planning documents are in need of an update. If that is the case, you should contact an attorney.
Jeffrey V. Manderscheid is an attorney at the law firm of Stotis & Baird Chartered and is licensed to practice law in Illinois. He is a member of the Illinois State Bar Association, Chicago Bar Association, and an allied professional member of the Financial Planning Association. Jeffrey can be contacted at jm@stotis-baird.com.