Your Estate Plan is More Than Your Will: The Importance of the Annual Review Your Estate Plan is More Than Your Will

Ask anyone the first word that comes to mind when they hear the term “estate plan.” The answer is likely “Will.” But your estate plan is much more than your Will. Your assets dictate what your estate plan documents are or should be.

Trusts and powers of attorney are vital parts of our estate plans.

But don’t forget, your beneficiary-designated assets – and the beneficiary designation forms that control them - are also part of your estate plan and need review and updating. So too with joint property and other types of property. Consider, for example:

401(k)/IRA: Ask anyone what most of their liquid money is invested in. The answer for many if not most is “my 401(k)” or “my IRA.” A Will does not control a 401(k)/IRA absent a failure of beneficiaries. A 401(k)/IRA is a contract between the owner and the financial institution. Death distributions are controlled by beneficiary designation form obtained from the financial institution.

Life Insurance: Most people are aware life insurance pays on your death to the persons or entities you name on the beneficiary designation form. Only if there is a failure of beneficiaries, and the estate becomes the default beneficiary, does the Will control.

Transfer on Death/Pay on Death /Other Beneficiary Designated-Assets: As we’ve discussed multiple times in our blogs and newsletters, TOD/POD/beneficiary-designated assets are fraught with peril due to their lack of incapacity management, unintended disinheritance, lack of supplemental needs planning, and the list goes on. With these type of assets, the beneficiary designation form or TOD/POD designation governs death distributions.

Joint property: Jointly titled property passes on the first death according to the deed or account title. Financial account contracts govern account titling. Only with certain titling of a deed does a Will govern death distributions. With joint property, the devil is in the details: is the deed or account titled according to your intent?

“Buckets” of Property

Accordingly, most clients have at least the following “buckets” of property to plan for: 1) assets that pass by Will or Trust, 2) beneficiary-designated assets, and 3) joint property.

With clients we review all of these buckets.

Clients must ensure a cohesive plan across all the buckets.

Often it makes sense for all buckets to have the same dispositive scheme.

But sometimes it makes sense for the buckets to have different dispositive schemes – so long as the differences are intentional and thoroughly considered.

For example, recently at least two sets of clients have developed an intentional, different scheme across buckets:

One married couple has charitable intent. They drafted their trusts to divide equally among their three children. But they agreed that on the wife’s IRA beneficiary designation form, in addition to the children, wife will designate several charities as beneficiaries, reducing the children’s shares of her IRA instead of the thirds they are receiving via trusts. This deviation was intentional because providing for charities via IRA beneficiary designation instead of via trust: (1) is more tax efficient (a charity receives a full $1 from an IRA, whereas an individual receives $1 minus income taxes), and (2) affords the IRA owner the flexibility to change designations as often as she likes without having to amend her Will and Trust.

Another married couple has one spouse who wants to leave a little more to the daughter than to the son. The couple prepared their trusts to divide equally among their two children. The couple agreed that on the wife’s IRA beneficiary designation form she will designate a higher percentage than 50% for the daughter she wants to leave more to. The wife has flexibility to change that daughter’s designation as facts change over time. The difference between the trust scheme and the IRA distribution scheme is intentional and planned by both spouses.

These two couples will need to review and update their beneficiary designations regularly over time as their finances, needs, family situation, and charitable intent change, as will all clients, even those who have the same dispositive scheme across all of their buckets.

Another frequently arising reason to review assets regularly is joint property. Examples: A couple has perfectly good trusts but forgets to use them in taking title to that wonderful new beach property. Or a husband and wife are tenants by the entireties on a deed but husband passes. Now wife holds title in her individual name, requiring probate on her death. Wife should consider transferring title to her trust. Examples of the need for updates are as limitless as the changes life provides us.

The Importance of the Annual Review

People think of their “estate plan” as the documents the attorney prepared, placed in their safe deposit box or fireproof safe as a “set it and forget it” item. Not so. The documents in an estate plan – including beneficiary designations, joint property titling, and asset titling – all should be reviewed regularly (annually at least) and updated to reflect new conditions.

We established our Protected Partners Program to help clients with this. At least once a year you should review your asset titling, beneficiary designations, circumstances, agents, and plan, to ensure they all are still appropriate for your circumstances at that new time – since we all know how different life and finances can be one year to the next.

Financial advisors have annual reviews with their clients. This year, when your financial advisor calls you to schedule his or her annual review, make that appointment.

But also set aside time for your own independent review of your assets and estate plan, because often you have assets spread across multiple buckets that the financial advisor only knows part of. Consider joining our Protected Partners Program to make scheduling your annual review automatic and to have us help you conduct that review.