Having a comprehensive, up-to-date estate plan involves many things beyond simply having estate planning documents in place. Here's a list of 10 things consider, review and or implement this year:
- Protect Your Assets - Make sure you have adequate liability insurance, which usually means the highest limits on your home and auto, plus at least million or two in umbrella liability insurance. For those with substantial sums to protect, consider the use of Limited Limited Companies and Asset Protection Trusts. Important tip - don't jointly own a car with your spouse or anyone else!
- Avoid Probate - The best way to avoid probate is to have a fully-funded revocable living trust. This will save time and money, provide privacy, and allow for ease of management in the event of incapacity. Other methods have limitations, but make sense to use in certain situations. These include joint ownership with right of survivorship, and Pay on Death (bank accounts) and Transfer on Death (investment accounts) beneficiary designations.
- Review Beneficiary Designations for life insurance and retirement accounts - This should be done every couple of years, and most importantly after divorce, death or incapacity of a beneficiary, or when your estate plan is updated. DO NOT name minor children or incapacitated persons as beneficiaries, as that may trigger the need for guardianship. I have seen many cases of outdated beneficiary designations that have resulted unintended persons getting the money or resulted in having to spend thousands of dollars in attorneys' fees to correct.
- Watch Out for POD and TOD Beneficiary Designations - These designations can be helpful in avoiding probate. Account owners often name a spouse or children as beneficiary. However, I generally do not recommend POD/TOD) designations. For one thing, the named beneficiary could be deceased or disabled when the account owner dies. Or what if the beneficiary dies shortly after the account owner and the money ends up going to an estranged son or daughter in law. A much better solution is the have the account owned by a revocable living trust, or at least have the account POD/TOD to the trust. The trust can cover all contingencies.
- Review Account Ownership - For those with revocable living trusts, usually accounts should be either titled in the name of the trust or POD/TOD to the trust. Otherwise, the account might trigger the need for probate. In some states, like Florida, joint ownership by a married couple offers protection from creditors of just one spouse. In other states, joint ownership may result in additional creditor exposure for the account. For couples in high-risk businesses or professions, separate ownership may be best. Finally, joint ownership with an adult child is usually not a good idea, as a child's creditors could get access to the account. Also, at the parent's death the entire account will belong the child, which may not be intended as part of the overall estate plan.
- Review Irrevocable Trusts - Many irrevocable trusts established at the death of a spouse or parent are now outdated. The trusts were drafted when the estate tax exemption was much lower, with purpose of saving estate tax. With the exemption now at $13.99 million, most people don't have to worry about estate tax. The problem is, however, that these older trusts do not allow for a step-up in basis at the death of the primary beneficiary, whether that's the surviving spouse or adult child. The good news is that these "broken" trusts can often be fixed by modern trust decanting or trust modification laws. I have done this many times over the last few years. The potential savings could reach hundreds of thousands of dollars.
- Consider Using a Professional Fiduciary - Most people name family members as fiduciaries in their estate plans. However, a family member is not always the best choice to serve as Trustee, Executor, Agent under a Power of Attorney, or even a Health Care Agent. A professional (such as an attorney or trust company), can often do the job more effectively and efficiently, and even less expensively in some cases. There is often little recourse when a family member fails to do the job properly, but lawyers are regulated by the State Bar and usually have professional liability insurance. Trust companies can make mistakes, but they have deep pockets.
- Execute a HIPAA Authorization - Otherwise known as an Authorization for Use and Disclosure of Protected Health Care Information, this document is crucial. It allows named family members, friends, and fiduciaries to speak with health care provides if you are unable to give consent. Acting Health Care Agents may not need the HIPAA Authorization, but other loved ones and fiduciaries will.
- Encourage Other Family Members to Plan - My older clients often report that their adult children with minor kids do not have estate plans. Grandparents should nudge their children to try to make sure the children have planned properly to protect their kids. Make the children's inheritance contingent on that! Parents of college-age children often don't think about the fact that they no longer have any rights to make health care decisions or handle the finances of their children. Parents should encourage (even pay for!) young adult children to execute General Powers of Attorney, Health Care Powers of Attorney, and HIPAA Authorizations.
- Report Gifts Over $19,000 - The 2025 federal gift tax annual exclusion is $19,000. Any person can give any other number of persons up to this amount and not have to report it. But gifts over $19,000 must be reported on a federal gift tax return. No tax is due as long as the donor has enough exemption left to cover the gift. As mentioned above, the exemption this year is $13.99 million. An example of when a gift tax return is required would be a gift of $50,000 for a down payment on a house, or the transfer of a residence to a child. By the way, it almost never makes sense to make an outright gift of real property to a child. If the property is transferred during the parent's lifetime, the child takes the parent's cost basis. That means that there is no step-up in basis to fair market value at the parent's death. The step-up would essentially erase the appreciation and result in no capital gains tax being due upon sale.
