Stephen F. Aton
With the precipitous decline in stock prices and real estate values, worrying about estate plans may seem strange, but now is really the best time to consider whether such plans are in need of a tuneup.
There are several factors to consider for estate planning, and once a plan is in place, if any of those factors change, it's time to take a close look at distributing assets to heirs and making sure provisions are in line with the plan owner's wishes.
One factor to consider is net worth, which may have declined a great deal due to the current economic crisis. A decline in assets can have a dramatic effect on an estate plan. For example, if a provision was made for a gift of cash to one or more individuals, the amounts stipulated should be reviewed in light of the total current estate value.
If, for example, you provided for cash gifts of $100,000, and the estate has declined to $125,000 in value, there will only be $25,000 for all other beneficiaries. This may not be the anticipated or desired result.
Beyond economic pressures, there are other circumstances that may signal the need for a review.
Divorce. If you are newly divorced, you should be aware that provisions for your ex-spouse in your will or trust are automatically revoked. But insurance policies, annuities, some individual retirement accounts and most bank accounts naming the ex-spouse as beneficiary are still effective and should be changed to conform with your present desires.
Marriage. If a wedding has occurred, you may want to consider making provisions for your new spouse. If you are planning to marry, a prenuptial agreement may be appropriate, especially for second marriages involving children.
Birth of a child. Name a guardian for the minor child in your will, and you also may want to set up a trust to care for the child in the event of your death.
Death of a beneficiary. If an existing estate plan includes a provision for someone who has since died, review what will happen to that gift to make sure that the result aligns with your wishes. The decedent's share may pass to their descendants or simply lapse. Check the provision to determine if the result is acceptable to you.
Separate revocable trusts. Before the Bush tax law changes in 2001, the amount you could leave without incurring estate tax (called the unified credit) was $600,000. The unified credit today stands at $3.5 million. Practitioners are expecting Congress to set the credit at $3.5 million for at least the next three years, but it has not happened yet.
As a result of the increased credit, many people who formerly had potential estate tax liability no longer have that concern. A married couple who set up separate trusts when the unified credit was only $600,000 may now be able to combine the trusts into a joint instrument. At the same time, it might be a good opportunity to review your choices for a personal representative and successor trustee.
Other documents. Your estate plan may include powers of attorney for financial matters and health care. If you have not looked at those documents in some time, take them out and see if any changes are necessary.
If your decision-makers have moved from the area or are no longer the best people to make important decisions, it is time to make a change.
Experts recommend that you review your estate plan at least every five years. A more frequent review is called for if any of the above events or circumstances arise.
Given the uncertainty in the financial and real estate markets, this is an excellent time to give your estate plan a tuneup and make sure it conforms with your current needs and desires.
Stephen F. Aton is a Springfield attorney practicing corporate, estate planning, personal injury and real estate law, and he is owner of Aton Title Co. LLC. He can be reached at steve@atonlaw.com.
