Estate Planning Tips

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Selecting Fiduciaries

One of the most important considerations in creating your estate plan is determining who will be named to act in various fiduciary roles on your behalf, both during life and after death.  That is, who will be named as successor Trustee of your Trust, nominated as Executor of your Will, and appointed as agents under your Power of Attorney and Advance Health Care Directive.  It is typical for individuals to want to name one series of successors to handle financial matters, and another series of persons to act as health care agents.

Naming co-fiduciaries can be an attractive option, particularly when parents do not want to differentiate between their adult children for fear of hurting any feelings.  In considering this, however, it’s important to keep in mind that naming more than one individual to act can present logistical challenges, such as the need to coordinate the signatures of multiple Trustees on documents.  Further, having two Trustees can lead to deadlocks, and if that is likely to occur, it may even make sense to appoint an additional “Tiebreaker Trustee” solely to resolve this issue.  Of course, every situation is unique, and naming co-fiduciaries could be a reasonable option despite the potential challenges.

An opposite problem of having too many people to name as fiduciaries is having no one to name as a fiduciary.  Perhaps an individual does not have any close relatives, or they are simply not comfortable with the propsspect of a relative or friend acting in any of these roles.  Some other possibilities are naming a licensed professional fiduciary or a bank’s trust services department (at least with respect to the Trusteeship).  By exploring these options during life, a person may meet and interview prospective fiduciaries to make sure that they are a good fit, and can also incorporate into their estate planning documents language that a corporate trust department may prefer before it will agree to act as successor Trustee.

Because relationships can change over time, it’s important to occasionally revisit your estate planning documents to confirm that the persons (or entities) named to act as fiduciaries still make sense in light of the current circumstances.  For example, individuals who executed their estate plan 20 years ago when their children were minors may now feel that their children are financially responsible and should be named as their successor fiduciaries (rather than friends they are no longer close to or their own parents who are not in a condition to act in such role).  Further, persons who named a bank to act as a fiduciary may find that the bank is no longer operating or eliminated its trust services department.  Changing named fiduciaries may occur as part of an overall estate planning update or sometimes as a very specific revision; which method to choose could depend on how long it has been since an update was last made.

Estate Planning Considerations for Young Adults

As high school graduation nears, it’s an important time to consider that most graduates are now young adults in the eyes of the law—having turned (or soon to turn) age 18.  Although “estate planning” is commonly thought of as a later-in-life necessity, it is also something important to consider at this critical age since parents no longer have legal control over the affairs of their child.  Accordingly, since high school graduates may still depend on their parents for “help” handling day-to-day life issues as they grow into adulthood, parents may be surprised if/when they are told that they may no longer access records or take actions with respect to an adult child’s financial accounts or health matters.

An option families can consider (ideally in advance of a child leaving for college) is the execution of a power of attorney for financial affairs (and, in some cases, health care), giving parents explicit permission to both obtain information and (to continue) to take action on behalf of the child.  Since these types of forms are generally drafted to be revocable, the child maintains the ability to withdraw the power granted to a parent when the parent no longer needs to actively serve in this supportive role.  Further, should an emergent situation arise, having such a document on hand is helpful in quickly resolving matters that might otherwise require a court order (such as accessing a child’s bank account because of the child’s unanticipated incapacity).

Beyond powers of attorney, young adults are generally not in need of complex estate planning, but they do sometimes execute Wills or other documents to direct the disposition of wealth they have accumulated.  To the extent that a child has a retirement account—earned or inherited—it’s also a good time to (a) make sure that the child has executed a beneficiary designation for the account; and (b) confirm when the child will have full, unfettered access to the account (typically sometime between ages 18 and 25), including if/when distributions are required to be made.  The place to start with these types of inquiries is usually the account custodian, which should be able to provide additional details about the status of the account and rules for its distribution.

Is It Time to Update Your Estate Plan?

My clients often express relief when they sign their estate planning documents.  After all, their affairs are finally in order!  But an estate plan is never truly “complete.”  Change is inevitable, and estate planning decisions that were made just a few years ago may no longer make sense today.

Common reasons to update an estate plan include:

  1. Eliminating successor fiduciaries who are no longer available or appropriate.  For example, younger clients may name their parents or siblings to act as their successor Trustees.  As time passes, it may make more sense to name younger successor Trustees (as opposed to aging family members).
  1. Updating distribution provisions as beneficiaries mature.  Parents typically want wealth preserved for the college educations of their minor children or might want to protect that wealth until their children reach an age of likely financial maturity.  Once these children obtain college degrees, begin their careers, or become parents themselves, however, such restrictions may be overburdensome and unnecessary.
  1. Adding special gifts to non-immediate family members or charities.
  1. Addressing changes in the tax laws.  The limits on how much individuals can pass without incurring estate tax has changed significantly over the last 20 years.  Even more changes are on the horizon.  It may be beneficial to revisit an estate plan to make sure that the structure still makes sense.

Most people retain the ability to amend their estate planning documents.  Even if, however, a trust has become partially irrevocable (meaning that at least part of the trust can’t be amended, often because a spouse has died), certain modifications might still be achievable (e.g., by going to court).

By reviewing and updating your estate plan from time to time, you should be able to ensure that how your wealth is distributed and who is administering your wealth both during your life (if you become incapacitated) and after death is what you want.  A good rule of thumb is to review your plan at least every five years, or when there are major life events such as a change in marital status, birth of children or grandchildren, deaths of named beneficiaries or successor trustees, significant changes in wealth (e.g., receiving an inheritance), or changes in the law that could affect your plan.

Did you know? 

For the charitably inclined, naming a charity as a beneficiary of tax-deferred retirement accounts (e.g., a traditional 401k or IRA) is usually more tax efficient than leaving a bequest to the organization under a trust or will.  When non-charitable beneficiaries withdraw funds from these types of accounts, those beneficiaries must report the amounts withdrawn on their income taxes.  But, since charities generally do not have to pay income tax, allocating tax-deferred retirement assets to a charity can make those funds go further while also benefiting the community at large!

Moreover, typically, the account owner may specify certain percentages to different beneficiaries, meaning you don’t have to give the charity the entire account (and may therefore also benefit your intended non-charitable beneficiaries as well). 

Lauren Sims VPS ’05 is an attorney at Ventura Coast Law LLP.  Lauren’s practice is focused on estate planning, trust and estate administration, and real property tax matters.  After Villanova, Lauren attended Scripps College in Claremont, California, and then UC Berkeley School of Law.

The above does not constitute legal advice—please contact an estate planning professional for more guidance regarding these concepts.