Don’t Miss Out on Estate Planning Opportunities

The recent article, “Rooting Out Estate Planning Opportunities,” from Financial Advisor offers a number of frequently missed opportunities in estate planning. Chief among them are failing to update estate plans, as changes to tax laws could mean that strategies used when your estate plan was initially created may no longer be relevant.

Before these opportunities can be discovered, it’s important to have a clear accounting of all of your assets, including a balance sheet of each “bucket” of resources: personal assets, trust assets, qualified plan assets, etc. The secret to success: meeting with your estate planning attorney every few years to review this entire picture to identify potential opportunities.

Once you have a sense of the whole picture, it’s easier to spot opportunities for your Estate Planning. For instance:

A Spousal Lifetime Access Trust, or SLAT, is an irrevocable trust used when a grantor wants to transfer part of their spousal exclusion into a SLAT to provide for their spouse and descendants. The SLAT keeps assets out of the donor’s estate and authorizes the trustee to make distributions to the grantor’s spouse, while at the same time it allows children or other heirs to be named as beneficiaries. Many couples use these trusts to protect assets from lawsuits.

There are some drawbacks to keep in mind. If one spouse is the beneficiary of the other spouse, all is well while both are living. However, if one spouse dies or becomes incapacitated and all assets are in the trust, the other may lose access to the trust created for the now deceased spouse.

The loss of access and the restrictions on SLAT distribution could be addressed by having both spouses purchase life insurance policies to fill the gap. At the same time, the couple would be well advised to look into disability and long-term care insurance.

Another situation is the use of a credit shelter trust, often called a bypass trust because it bypasses the surviving spouse’s estate. They are not as advantageous as they used to be because of today’s high estate tax exemption. They were also popular when the surviving spouse wasn’t able to use their deceased spouse’s estate tax exemption.

With the federal estate tax exemption up to more than $12 million, many who still have credit shelter trusts may find they don’t make sense in the short term. However, for now the federal estate exemption is set to drop down to $6 million when the Jobs and Tax Act sunsets. Depending upon your circumstances, it may be worthwhile to maintain this trust. Your estate planning attorney will be able to guide you.

Merging old trusts into new ones, or “decanting” them, makes sense in some situations. A new trust can be better crafted to align with the latest in tax laws and serve the same beneficiaries for as long as your state’s laws permit.

The two important takeaways here:

  • Estate planning requires a complete look at all of your assets and liabilities to make the best decisions on how to structure any estate and tax strategies; and
  • Estate planning needs to be reviewed on a regular basis—every three to five years at a minimum—to ensure the strategies still work, despite any changes in tax laws and your situation.

Reference: Financial Advisor (Nov. 1, 2022) “Rooting Out Estate Planning Opportunities”

When Should a Trust Be Reviewed?

Life changes, and laws change too. The great trust created two decades ago may not be a good idea today and may no longer be suitable for you or your beneficiaries. As a general rule, you should review your estate plan and trust every other year, according to the article “Revisit trust on a regular basis” from the Santa Cruz Sentinel.

Start with the Table of Contents, if there is one. There should be language concerning “Successor Trustees.” Are the trustees you named still alive? Are they still part of your life, and do you still trust them? How are their money skills? If they don’t get along with the rest of the family, or if they have been embroiled in a series of petty disputes, they may not be appropriate to manage your trust. Don’t be afraid to make changes. Your estate planning attorney will know how to do this smoothly and properly.

Next, find the paragraph that discusses “Disposition on Death” or “Disposition on Death of Surviving Spouse.” Does it still make sense for your loved ones? Have any children or family members who are listed as receiving benefits died? Are any heirs disabled and receiving government benefits? Have any of your children developed addictions, problems handling money, married people you don’t trust, or are preparing to divorce their spouses? Changes can be made to protect your children from themselves and from others in their lives.

Look for a “Schedule of Trust Assets.” When was the last time this was updated? If you’ve moved and the trust still lists your last residence, you need to change it. Is your new home in the trust? Are retirement accounts correctly listed? Do you have new assets you’ve never placed in the trust? This is a common, and costly, oversight.

If married, how does the trust address what occurs between the death of the first spouse and the surviving spouse? Do you have an A/B trust to divide everything between a Survivor’s Trust and a Bypass Trust or Exemption Trust? Maybe you don’t need or want an A/B trust anymore. Talk with your estate planning attorney to be sure this is structured properly for your life right now.

How is your health? If you or a spouse are in a nursing home or if one of you is ill and likely to needs nursing home care, it may be time to start planning for a Medicaid Asset Protection Trust.

While you’re reviewing your trusts, trustees and beneficiaries, don’t forget to review the people named as beneficiaries for your retirement accounts and life insurance policies. These should be reviewed regularly as well.

Reviewing your trust and estate plan on a regular basis is just as necessary as an annual physical. Leaving your accumulated assets unprotected is easily fixed, while you are alive and well.

Reference: Santa Cruz Sentinel (Nov. 20, 2021) “Revisit trust on a regular basis”