Episode 48: Outdated Estate Plans: When “Good Enough” Becomes a Disaster

Outdated Estate Plans: When “Good Enough” Becomes a Disaster

Hello, it’s Peter Klenk, Trusts and Estates Attorney, talking to you about death and taxes.

So, grab that margarita, sit back, relax, and let’s talk.

Today’s subject: outdated estate plans.

Is one estate plan good enough, really? Or is an outdated estate plan just a disaster waiting to happen?

What is that? What is an estate plan? What is “outdated”?

Well, these are all, of course, questions that are individual and distinct to you.

Your will that you wrote when you were 20 might be perfect when you die at 99. It might be exactly what you want. It might say, “I leave everything to the Humane Society,” and that’s still exactly what you want. It doesn’t matter whether it’s $1 or a billion dollars.

Well, then you’re set, right? It’s ready to go.

But hey, somebody has to execute your plan. Maybe the person you picked at 20 isn’t even alive when you die at 99.

So it might start off looking like it’s ready to go and not outdated, but it might actually need some updating.

In our system, the way we do it at our firm, we also have summaries for all of our estate planning documents. They basically say, “Hey, here’s what you did.”

Every six months, we send you a little email nudge that says, “Hey, make sure you take a look at this. Make sure it still reflects your wishes.”

Because it’s not only your documents.

It’s also the list of where your executor should go to find your stuff.

If you have a plan in place and you say, “My executor is my son, and he’s very diligent,” and then you die, but he has no idea whether you filed your taxes, whether you have a bank account, where your financial information is, or, God forbid, some real estate or a business he doesn’t understand, it’s a mess.

So part of estate planning is not only getting the documents right, but also making sure your list of where people should go to find your things when you die is up to date.

All of these things need to be thought through.

Remember, you might have a very complex plan or a very simple one, but everybody should have at least three documents:

• A will, which may be replaced by a revocable trust.
• A durable power of attorney, naming the person who takes care of your finances if you’re incapacitated.
• A living will and medical power of attorney, usually combined into one document.

That last document determines who speaks for you at the hospital and what your wishes are if someone wants to make you DNR.

Those are the basics.

You might have much more, but we’ll stick with the basic three for now.

The concept is the same: periodically ask yourself whether the people you’ve chosen are still the right people for the job and whether your documents still reflect what you want to happen to yourself and your assets.

Because things change.

That’s what life is.

Life is constant motion. Life is constant change.

Nothing sits still while you’re alive.

The decisions you made one day and the people you selected might not be the same decisions or people you’d choose later. Your financial goals may change as well.

That’s why every six months we send clients a little nudge to think about it.

But if you don’t have a trusts and estates attorney who does that, you should do it yourself.

Put a reminder on your calendar every couple of years.

“Hey, remember your estate planning.”

Because if you don’t, we see this all the time—your wishes change, but your documents don’t.

And then you’re stuck with the old plan.

I’ll give you a good example.

Medicaid.

You might have named a beneficiary who wasn’t on Medicaid when you created your estate plan.

Now they are.

If you don’t update your plan and they inherit assets directly, you may accidentally knock them off their benefits.

That’s a bad thing.

We constantly get emails and questions from people saying, “Well, my great-aunt died and left me a portion of her IRA, but I’m on Medicaid.”

Guys, it’s a mess.

You can’t simply say, “Oh, I don’t want it.”

You inherited it.

At that point, you’re obligated to report it, and suddenly your benefits are affected.

Sorting that out can be incredibly difficult.

So you shouldn’t only think about what you want. You should also think about the people receiving your assets.

You might say, “Hey, I’ve left my assets to one of my children.”

But now they’re getting divorced.

If you die and they receive those assets, those assets may suddenly become part of a divorce battle one way or another.

It’s going to be a mess.

So it’s not only about your life and your assets. It’s also about what’s happening in the lives of the people you’re trying to help.

Some people name charities as beneficiaries.

Then years later, the charity no longer exists.

Now what do we do?

Do we find a similar charity and give it the money?

Does the money now go to family members?

As you can imagine, that’s a dispute many people find worth fighting about.

Instead of your legacy being that you helped a wonderful charity, your legacy becomes your family and a group of charities fighting with each other for two or three years.

So keeping your plan updated matters.

Think about guardianships.

When your baby is born, you pick somebody you trust to raise your child.

That person might be perfect for a baby.

But 15 or 16 years later, you’ve got a teenager.

And I don’t know if you know this, but teenagers can be a real pain in the ass.

Maybe the person you picked would have been wonderful with a baby, but now they’re 15 years older too, and maybe they’re not really up for dealing with your teenager for the next several years until they become a solid human being.

Maybe you need to update that choice.

Maybe the person who’s perfect for raising your child isn’t the best person to handle the money.

Over those 15 years, you’ve learned more.

Maybe you now realize they’re not very good with finances.

So maybe they should still be the guardian, but somebody else should be responsible for managing the money.

These are all things you learn over time.

You gather more information.

People change.

People die.

People marry.

People become different people—sometimes for the better, sometimes for the worse.

And when it comes to your children, you simply know them better.

You’ve had 15, 20, or 30 more years to understand who they are and what would be best for them if something happened to you.

That may completely change the decisions you originally made.

Then there are the laws.

Tax laws change.

The reality is that when I started practicing law, the federal estate tax exemption was $600,000.

Now it’s roughly $15 million per person.

Obviously, that affects far fewer people.

You may have a very complex estate plan that was designed because you expected to die with five or six million dollars and face federal estate taxes.

Now you may not need all of that complexity anymore.

You may be able to simplify everything dramatically.

Everybody’s still protected.

Everybody’s still competent.

The law just changed.

And when the law changes, your estate plan may need to change too.

So yes, the proper thing to do is think about your estate plan at least every couple of years.

We offer free consultations with our clients if they simply want to refresh their memories.

Sit down. Talk for 15 or 20 minutes.

That’s often all you need.

Just make sure your documents still reflect the world you live in today.

And I know most attorneys do the same thing.

It’s important for you.

It’s important for your heirs.

It’s important for the people you’re leaving your assets to.

So, there you have it.

I’m Peter Klenk, Trusts and Estates Attorney. I’m helping you with your legacies and your planning.

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I look forward to talking with you again.

Be well.