Creating or Revising Your Estate Plan

Melissa Olszak, CFP®, CFA® BY: Melissa Olszak, CFP®, CFA® 08.13.18

Know How to Spot What’s Missing from Your Estate Plan and What Can be Improved

Maybe you’re thinking for the first time about what your estate plan should look like. Maybe you’re revisiting your estate plan for the second or third time.

Either way, your ultimate goal should be to have an estate plan that aligns with your long-term objectives. While we don’t recommend going it alone, there are a handful of factors you should be sure to consider as you craft or re-craft your estate plan.

Naming the Executors, Agents and Trustees of Your Estate

Depending on the type of estate plan you have, you will need to choose a trusted person to act on your behalf if you are not able. For instance, with a Health Care Proxy, you are choosing someone to make medical decisions on your behalf. For a Durable Power of Attorney, you are asking someone to make financial decisions (while you are living) on your behalf. For your Will and Trust, you are asking someone to handle the disposition of your estate according to your wishes.

Given the significance of each of these roles, one of the important decisions you will make is choosing someone (or often a combination of people) who are sophisticated and savvy to handle the complexity of estates, taxes and finances, but who also know your values and will respect them.

Once you’ve made the decision on who to name (whether that be a trusted family or friend or a trusted attorney), it is as important to understand what the back-up rules will be if that person is unable to serve – i.e. who can appoint a successor, who can remove a trustee, what occurs with further vacancies.  

Walking through a few scenarios with your attorney as the documents are drafted will help flush out your objectives.

At Lake Street, we often advise that clients choose both a trustee family/friend along with a trusted advisor (attorney, CPA, etc.) and also provide future beneficiaries with appointment and removal powers in case adjustments need to be made in the future.   

Managing Your Assets: Do You Leaving Them Outright or in Trust?

Another important consideration for your estate plan is how you want to leave assets to your beneficiaries – whether that be a surviving spouse, your children, further descendants, friends and/or charity. This decision is often influenced by the size of the assets. The larger the assets, it generally is more beneficial to leave them in trust versus outright, since there is typically a higher level of asset protection.

Although court decisions are often unpredictable, trust assets that are not self-settled (i.e. funded with one’s own assets) typically will have language built into them to provide some level of protection from the beneficiary’s creditors (such as divorce, accidents, business, etc.). Once the assets are distributed from the trust and fully in the control of the beneficiary, that asset protection is lost.  

With the right trustee in place who understands your values, the beneficiaries can still be supported in a way you would like without having to distribute the assets to them (for instance a trust can purchase a home for a beneficiary).

Keeping assets in trust does come with costs, however, including trustee and legal fees, accounting fees and investment management fees, so these costs need to be considered relative to the total assets that will be retained or distributed.

How to Build Flexibility into your Estate Plan

To err is human; therefore, It is not uncommon to make a decision and look back years later wondering what you were thinking. This scenario happens as life evolves with family and friends, but can also happen as a result of tax and legal changes at the Federal and State level. Given that it is impossible to predict the future, it can be helpful to build flexibility into your estate plan.  

For instance, with Irrevocable Trusts, which are trusts that by design cannot have the dispositive provisions changed, it is helpful to consider whether there may be any administrative changes that may be needed in the future to adjust for trustee changes and/or legal and tax changes. When you consider the potential changes that may occur in the life of your spouse (if you predecease him/her, for example) or a child/grandchild, you may want to provide them with the flexibility to change your plan if it makes sense. One way to do so is to provide them with a power of appointment over the assets in trust for their benefit. It is important to do this with your attorney, as there are tax differences between the types of powers of appointment you can provide – general or limited.  

That being said, one example is that you could provide your spouse with the ability to change the plan to change the amounts left to children, spouses of children and charity. Say, for instance, there is a child with special needs in your family. This situation may require a modification of the estate plan to account for how it is best that the child receive the trust assets.

This same example could apply to your children – i.e. giving them the ability to redirect assets in a trust for them to include their spouse rather than potentially defaulting to a trust for only their children.

While there is no “right” answer, it is important to think through your objectives and determine whether to add in the flexibility, and also discuss with your attorney as there are also often tax implications to consider as well.

Putting Your New or Revised Estate Plan Into Action

Once you think through your estate plan, it is equally as important to implement it by signing the estate documents and thinking through whether any assets should now be shifted to take advantage of your new plan. This action could simply involve retitling assets from your personal name to your new Revocable Trust to move assets outside of probate (which will save time and money if something happens to you), or it could involve more advanced wealth transfer strategies such as shifting assets to an Irrevocable Trust via a lifetime gift.  

At Lake Street, our goal is to understand your objectives and work with you and your other advisors to help implement a customized plan that best meets your needs. Estate plans can be complicated, and the more people you have working on your team, the better!

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