(This is an updated post from December 2015)
Need a New Year’s resolutions to kick start 2017? Here is an idea you probably hadn’t considered: review your estate planning documents.
If you are like most people, you are probably thinking that reading legal documents does not sound like an even remotely enjoyable way to start a new year. But, it doesn’t have to be as unpleasant as it sounds. Reviewing your documents does not mean you have to read them cover to cover. If you know what are the most important elements, it is easy to review your will, trust, and powers of attorney regularly to ensure they still comply with your wishes. These documents not only determine who will receive your property when you die, but also likely determine who has the right to make financial and major medical decisions during your lifetime. Needless to say, it is important that you are still comfortable with the designations you have made.
To get you started, below is a basic checklist of items we suggest you review annually (make it a New Year’s tradition!).
1. Assess the changes in your life since you last updated your estate planning documents.
Have you gotten married or divorced? Had a child or adopted a child? Moved to a different state? Had a death in the family? Had a major financial event? Any of these life changes may affect your estate planning, and your documents may need to be revised.
2. Review your will and/or revocable trust.
Some individuals have only a will, others have both a will and a trust. In either case, one of these documents will direct where some or all of your property will go at your death. The following are the elements of these documents that are most important to review.
a. Personal Representative (also known as the Executor) and Trustee designations.
The individuals and/or institution you name should be those you consider responsible and trustworthy. If you designate more than one individual Trustee, consider whether they get along and will be able to work together. If you have not already, you may also want to consider designating a corporate Trustee, either to serve with a specified individual Trustee or to serve as sole Trustee if none of the individuals you name are able to serve. For example, if you want your children to be able to serve as Trustees of the trusts for their benefit, but don’t think one or all of them is financially responsible enough to handle the trust assets, it may make sense to name a corporate Trustee to serve with the child. It may also make sense to name a corporate co-Trustee if you want a particular individual Trustee to have a say in how distributions are made but do not want to burden that individual with the responsibility of handling the trust investment and accounting. A corporate Trustee brings expertise and resources to the table that an individual Trustee usually cannot provide, but will typically charge significantly higher rates than individual Trustees. If you are designating individual fiduciaries, it is important to inform them in advance of your desire to name them in your estate planning documents and to discuss with them the responsibilities such a position may entail. In addition, it is a good idea to discuss with your Personal Representative or Trustee your reasoning for any “out of the ordinary” provisions you may have included in your documents, such as disinheriting a child or making unequal distributions among children.
It is important to review who is designated to receive your property after your death, including any monetary gifts you may make, to ensure these designations remain up to date. Do you still talk to that friend to whom you are giving $5,000? Does your housekeeper who is designated to receive a cash gift still work for you? Does your child still owe money on that loan you refer to in your documents?
c. Gifts of Specific Property.
If there is any specific item of property, such as a family heirloom or jewelry, that you want a particular person to receive, you should update your documents to incorporate that gift. Many states allow you to specify such a gift in a list separate from your will or trust, while other states require that it be specified in the document itself. Additionally, increasingly, people are specifying who should receive their pets upon their death and sometimes even provide a fund to pay for the pet’s care. If you wish to provide for your pets, your will or trust should be updated with specific provisions that reflect your wishes.
3. Review your Financial Power of Attorney.
This is the document that allows the person you name as your attorney-in-fact to act for you in a wide array of financial and business matters. It is essential to review who is named as your attorney-in-fact regularly to ensure that person continues to be someone you trust to deal with your bank accounts, sign your name to documents, etc. If you do remove a currently appointed attorney-in-fact, it is a good idea to send a notice of revocation to that person and to attempt to recover any copies of your previous power of attorney they may have in their possession. It is also important to review whether your financial power of attorney is presently exercisable or becomes exercisable only if and when you become unable to handle your financial affairs. Consider whether the designation you have made is still fitting now.
4. Review your Health Care Power of Attorney and Living Will.
This may be one document or two. Your health care power of attorney appoints one or more individuals to make health care decisions for you if you are unable to make those decisions yourself, and your living will communicates to your doctors your wishes for end of life care if you have a terminal condition. Review your health care power of attorney to ensure the persons you have appointed as your attorneys-in-fact are individuals you trust to make major medical decisions for you and who are mature enough to handle that responsibility. It may also be wise to appoint at least one person who lives in the same city or state as you, rather than someone who lives across the country and would be less accessible in the case of an emergency. You should also review the wishes you have expressed in your living will for your medical care. As medical standards and procedures evolve, your wishes may evolve as well. In addition, it is a good idea to discuss your wishes with the person(s) you have appointed as your attorney(s)-in-fact.
5. Review the Beneficiary Designations on your Insurance and Retirement Plans.
This is last, but certainly should not be considered least. For all the same reasons you should reassess the beneficiaries of your will or trust periodically, you should also review and assess the beneficiary designations on your life insurance and retirement plans. Yet these designations are often overlooked by people when updating their estate planning. The last thing you want to do is update your trust to write out an ex-spouse or to disinherit a child but inadvertently leave that person as the beneficiary of your life insurance.