Do you know what kind of estate plan your parents have? The holidays can be a great time to figure that out together.
You see, if you buy a car, you'll know whether you got a lemon in no time. But when will you know whether your parents' estate plan is a “lemon”? Probably years from now, when one of them becomes ill or disabled or passes away -- the very time when you and your family most need it to work -- and when it may be too late to fix!
Don't get me wrong, it's great to have an estate plan. And if your parents have one that includes a living trust, their plan may be just fine. The problem is, once your parents set their plan up, it just sits innocently in their home or safe-deposit box. It doesn’t require much (or any) annual paperwork. It doesn’t affect their income taxes. It doesn’t restrict their use and enjoyment of their assets. So, they probably just put the plan out of mind.
That's what’s so dangerous.
Has your parents' estate plan been kept up-to-date with their wishes?
Does it reflect the current needs and circumstances of their loved ones (including you)?
Has it been updated for changes in the law?
Does it reflect the newest planning strategies?
Why am I making a big deal out of this? Because I regularly review estate plans, including living trust plans, that contain multiple defects! These defects are the kinds that may someday cause you and your family needless suffering, as well as unnecessary court fees, attorneys' fees, taxes, and exposure to the claims of in-laws, ex-spouses, and other unprincipled parties.
If at all possible, please don't let your parents' estate plan (or lack of a plan) remain a disaster waiting to happen. To help you get the conversation started this holiday season, here are nine points you should raise with them:
1) Will your parents' plan protect you and their other loved ones from losing their inheritance to divorces, lawsuits, creditors, and government claims?
2) Does their trust use a special legacy provision to build your family's wealth, free of unnecessary estate taxes for many generations?
3) Does their plan permit whichever parent lives longest to save (potentially) thousands of dollars in unnecessary capital gains taxes?
4) If your parents are married, does their trust contain the right kind of "A-B" language to avoid unnecessary paperwork and fees for the survivor?
5) Are their health care documents and their living trust properly updated for recent laws called “HIPAA” and “CMIA” -- so the person they've named as their Successor Trustee can act promptly when they are ill or disabled, rather than be forced to go to court?
6) Do they have a simple, but invaluable, emergency card that will make their health care documents available to any hospital where they are admitted?
7) Are their IRAs and company retirement plans protected by their living trust alone? (Note, thanks to recent IRS rulings, it's possible to make these accounts into the largest asset they'll leave to the next generation. Without proper advance planning for their accounts (even if they are just $150,000 accounts), your family could lose millions in potential wealth.)
8) Does their trust have the flexibility to adapt after they are gone to new tax laws and the ever-changing needs of their beneficiaries? Or could their trust simply fail to work the way they intended?
9) Have they heard from their original estate plan attorney recently? If not, how do they know that person is actually representing their best interests? Will that person really be someone you want to work with if something happens to your parents? I don’t mean to be cynical, but is their old lawyer actually hoping that your parents won't update their plan? If they don’t, and if that lawyer is still around, you may end up paying him or her a ton of money to deal with any big messes.
All estate plans, all living trusts, and all lawyers are NOT equal. Many estate plans fail because they simply aren’t maintained or kept up-to-date. Is the one your parents have (or are thinking about getting), really going to do what they want it to do?
If your folks would like to know more about having their plan created or reviewed, please have them contact us. We would love to see if they are a good fit to work with our firm. Mention this blog article by January 31, 2008, and we won't even charge for a review (or an initial consultation).
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