PERSONAL FINANCES: Non-Tax Reasons to Review Your Estate Plan Now

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The Build Back Better Act could potentially contain tax code changes that could have a profound impact on estate planning. Although many of the changes proposed in the original bill were not passed by the House, once the Senate acts on the bill and it is sent back to the House, a contentious reconciliation process is likely. The bill is far from becoming law and changes to the tax code could be reflected in the final version.

Some people, especially the very wealthy with complex estates, have chosen to delay estate planning until there is greater tax certainty. For most of us, reducing estate taxes is just one of many aspects of estate planning. Here are some important non-tax aspects of estate planning that shouldn’t be delayed.

Disposal of assets on death

Your will is the main vehicle for determining how your property will be distributed upon your death. (Using a living or revocable trust with a “transfer will” may be an alternative.) The transferred assets may be financial property, real estate, or other objects such as works of art and objects of family. The assets controlled by your will can be transferred directly to the named beneficiaries; transferred to an existing trust (an inter vivos trust); or transferred to a trust that will be created under the terms of your will (a testamentary trust). Trusts are very useful when the intention is to distribute assets at a future date or under specific conditions.

Guardianship for children

When you have minor or disabled children, it is common to name their potential guardian in your will. Usually, the guardian will be the surviving spouse, but not always. Arrangements should be made to take into account the circumstances in which the surviving spouse may have died before you, or if you both die in a joint accident.

Sometimes the choices of guardians are obvious and not contentious. Sometimes there are only bad choices or the spouses cannot agree on potential guardians. I have seen the estate planning process come to a halt more often because of the choice of a couple’s guardians than with any other issue.

Administration of your estate

On death, the estate of the deceased is constituted according to the law. The person (s) or financial institution responsible for managing the affairs of the estate are the executor (or co-executors). They are responsible for accounting for your assets and liabilities, submitting the will to the courts to verify its legitimacy (this process is called probate), managing the assets under the control of the estate until their distribution, distributing the assets according to the provisions of the will, submit tax and accounting returns to various authorities and, ultimately, when all assets are distributed and forms filed, liquidate the estate. Depending on the size of the estate, the complexity of the assets and the family dynamics, being an executor can be difficult and time consuming work.

Very often testamentary trusts will be created under the terms of the will. The fiduciary responsibility for these trusts rests with the trustee (s) named in the will. Sometimes the appointed trustee is the same as the executor, but not always.

Asset title

The title of assets is critically important to the estate planning process. Wills only control the disposition of assets that are part of the estate. This means that there are assets that can be transferred directly to a beneficiary and that are not controlled by the provisions of the will. Here are some examples of assets that are transferred out of the will: life insurance proceeds when the policy designates a beneficiary other than the deceased’s estate; financial accounts (including IRAs) designating a beneficiary; and jointly owned real estate where the survivor obtains full ownership upon the death of the deceased. Often, assets associated with his workplace, such as 401 (k) plans and action plans, also provide for the designation of beneficiaries, which supersedes all provisions of the deceased’s will.

Whether a deceased’s property passes within or outside the will is not a question of good or bad – strong arguments can be made for both. The point is, the discussion of title to assets (especially when there is a revocable trust) is an extremely important aspect of the estate planning process.

Ancillary inheritance documents

In addition to writing a will and possibly related trusts, other important estate documents are usually written at the same time. These documents include a Healthcare Directive, Healthcare Power of Attorney, Power of Attorney, and HIPAA Disclosure Authorization. These documents make it much easier to manage your care and your financial life during periods of incapacity, inform medical personnel of your intentions, and designate others to act on your behalf. These are important documents and are an integral part of the estate planning process.

Conclusion

While I have focused on the non-tax aspects of estate planning, there are some tax savings that can be incorporated that will likely remain relevant regardless of any potential changes in tax laws. Certainly, consideration of state tax laws and giving strategies should be built into the estate planning process. Regardless of future tax developments, meeting with your finance professionals to create or revise your estate planning is always timely and provides a solid model should you need future tax changes.

The author does not provide tax, legal, financial, or investment advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, financial, and investment advisers before committing to any transaction.


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