When Do I Need to Update My Estate Plan?

Most of us understand the importance of annual physicals, regular dental exams and routine maintenance for our cars. It is just as important to schedule an annual estate planning review or check-up. Do not neglect to regularly review and update your estate planning, as it is vital to the well-being and protection of yourself and your loved ones.

At a minimum, you need to update your estate plan whenever there is a change in your life or the laws that affects your planning. Your estate plan is not static. It needs to be continually reviewed and updated to reflect changes in the tax and Medicaid laws in addition to many other life changes. One or more of the following events may require you to revise your estate plan:

• The birth, death, divorce or remarriage of anyone associated with your estate plan. This includes your marriage, divorce or the birth or death of a child. Or, your own children get married, divorced, die or have children of their own.
• The value of your assets changes significantly (up or down).
• Your health changes. One day you’re vertical; the next day you’re horizontal. Trust me, nothing changes your perspective more than when you’re lying in bed, horizontal.
• You move to a different state.
• One of your beneficiaries becomes incapacitated.
• One of your named fiduciaires (executor, trustee or agent) dies or becomes incapacitated or your relationship changes.

Don’t be like a lot of people who signed their Wills 10 or 20 years ago and then threw them in their file cabinet or safe deposit box, never to look at them again until forced to by the occurrence of a life changing event. If you’re lucky, it won’t be too late and you will be able to update your estate plan before you die or become disabled. Your estate plan has to work when you need it most, otherwise it is not worth the paper on which it is printed.

Be open to becoming re-educated about the need for estate and long-term care planning. While the occurrence of the life changing event may be the catalyst for making an appointment to update your planning, make sure that your attorney educates you regarding changes in the tax and Medicaid laws. And don’t forget that you must educate your attorney about your family and your needs and goals.

The Holistic Approach to Estate Planning

As an estate planning and elder law attorney, I strive to find solutions to my clients’ needs and goals. When it comes to elder law issues, my clients rely on me for more than traditional legal advice. I try to help my clients navigate the myriad issues relating to the aging process. This includes issues relating to health, disability, caregiving, finances, family relationships, estate planning, quality of life and end-of-life decision making. All of these issues are much more complicated than discussing the legal options regarding asset protection and preservation.

Inadequacy of Traditional Estate Planning

Traditionally, the avoidance or minimization of estate taxes was the biggest factor motivating people to engage in estate planning. However, with estates of up to $3.5 million passing estate tax free in 2009, and with no estate tax due in 2010, this is of less concern. Other reasons for planning include providing the legal framework necessary to spare loved ones the anxiety and frustrations that can come from pre-death guardianship and post-death probate court proceedings.

Traditional estate planning involves the preparation of wills or trusts, powers of attorney, health care proxies and living wills. These documents are generally predicated on the premise that you will pass away quickly and easily in your sleep. Thus, the biggest issue the estate plan needs to address is how to make it easier for your loved ones to administer your estate. Alternatively, the traditional estate plan will ensure that your appointed agents will be able to manage your financial and medical affairs should you become incapacitated.

However, these solutions do not address the more urgent threat or the real issue of unexpected medical costs and the depletion of your assets to support quality-of-life goals. The payment of estate taxes is not the prime concern or threat. Rather, it is the threat of unexpected or unanticipated long-term care costs.

The reality today is that one of eight people over age 65 and one of two people over age 85 will face dementia-related incapacities for which neither Medicare nor any health insurance will pay. Without proper planning, many people risk depleting their estates to pay for these very expensive and often lengthy chronic care costs.

Though traditional estate planning includes advance directives for end-of-life planning, more comprehensive planning is required. Traditional estate planning neither asks about your daily living preferences if you have a chronic illness nor about your preferences about quality-of-life issues. Traditional planning neither asks your chosen agents about their familiarity with long-term care issues nor about their willingness to reach out for assistance in executing their assigned roles.

Your agents may not have the skills or knowledge necessary to make informed decisions about your quality of life or the time necessary to study the issues to make informed decisions. Consequently, your quality of life will likely be based on input given to your agents by doctors, hospital staff, nursing homes and others consulted by your agents, which may be traditional advice based on prevalent institutional biases. As a result, your quality of life may suffer. In addition, the quality of life of your loved ones may also suffer while they are trying to deal with complicated and time-consuming issues with which they may not be ready or have the time to deal. This may cause them to make decisions that they themselves do not deep down agree with (e.g. admitting you to a nursing home against your known wishes and expressed desires).

These issues can be overcome by Life Care Planning.

Life Care Planning

Although the estate planning we provide is comprehensive and includes Life Care Planning, it is not complete unless we provide ongoing guidance and assistance to our clients and their chosen agents and fiduciaries. The guidance and assistance we provide is designed to: (1) aid in asset protection and preservation through legal solutions; and (2) help our clients and their agents or family members provide the quality of life they desire and so deserve.

Life Care Planning is a holistic estate planning process that addresses these issues. It does so by understanding that most families dealing with the disability or death of a loved one do not simply seek to protect assets, but rather to ensure that the protected wealth is used to address the care needs of the incapacitated person and those affected by the incapacity, or to bring a peaceful closure to the passing of a loved one.

Life Care Planning is a proactive process which allows you to ensure that your instructions will be carried out -- and that you will be cared for the way you want to be cared for -- should you become incapacitated. It also allows you to remove much of the complicated decision-making – and hence much of the stress-- that your loved ones will ultimately face while caring for you during your incapacity.

How Much Can I Gift Each Year?

The IRS and New York State Department of Taxation and Finance allow you to gift away $13,000 per year (or $26,000 if you’re married) to unlimited individuals without incurring gift tax. However, any sums gifted to the same individual in excess of $13,000 will eat into your $1 million lifetime gift tax exemption. Thus, if you give your son $100,000 in 2009, then $13,000 is gift tax free and the balance of $87,000 is deducted from your $1 million lifetime exemption, leaving you with a balance of $913,000. While you should file a gift tax return (IRS Form 709), there won’t be any gift tax due. You will only have to pay taxes at the point in time when your lifetime gifts exceed $1 million.

Be mindful, though, of the interplay between the gift tax and Medicaid laws. While this type of annual gifting is perfectly legitimate from a tax standpoint, you must recognize that Medicaid does not view such gifting from the same set of lenses. In fact, Medicaid deems such gifts to be uncompensated transfers, resulting in a penalty period. Accordingly, gifting away assets may result in a period of ineligibility for Medicaid.

Also, don’t forget that once you gift away assets, they are no longer yours and are subject to your donee’s creditors and predators (i.e., taxes, in-laws, judgments and nursing homes). There are ways to gift assets to reduce your taxable estate while maintaining control over them and protecting them for your beneficiaries. I strongly suggest that you consult with a qualified estate planning and elder law attorney before engaging in any type of asset transfers or gifting programs. .

Do I Need An Estate Plan?

To answer this question, take the “two finger” test. Place your two fingers on the inside of your wrist. If you feel that thumping sensation, it means you are alive and the answer is “yes”.

In all seriousness, estate planning is critical for people of all ages (as long as you are over the age of 18). Unless you can guarantee that you will not die or ever become disabled (mentally or physically), you need an estate plan. Traditional estate planning used to consist of a last will and testament to pass assets to family members after death. Maybe it also included a basic power of attorney. Modern or proactive estate planning is about so much more. It is about taking the necessary steps to protect yourself, your loved ones and your assets from creditors and predators (including taxes, in-laws, lawsuits and nursing homes) should you become disabled and then when you pass away. It is about making sure that you remain in total control while you are alive and well. It is about ensuring that your personal instructions will be followed by your family, friends or helpers should you become disabled. And, finally, it is about ensuring that your assets will pass to your loved ones the way you want them to quickly and easily after your death.

Traditional estate planning does not work anymore because life has changed. In the old days, people lived and then death came quickly. Now, with advances in medical science, people are living longer, but often with a decline in their mental capacities. Traditional estate planning fails to deal with mental incapacity. So many people think that they have completed their planning and have protected themselves because they have a will. If you are in that category, ask yourself this question: “If a will is not effective until after I die and it is admitted to probate, how effective is my will if I become mentally incapacitated?” It’s not. That’s the main reason why wills don’t work anymore. There’s a whole period of time when the will is not effective. That period is your life.

Common Ways to Mess Up Your Estate Plan

Improper estate planning can lead to unintended consequences and dire results. A lot of my educational workshops and consultations are centered around clearing up many myths which people have heard and misconceptions they understandably have about estate and long-term care planning. The next series of blogs will discuss some of the common estate planning mistakes and show you how you can avoid repeating them.

Failure to Understand How Your Assets Pass on Your Death: Most people think that their Wills control how their assets pass upon their death. However, they have no idea how their assets are held or who they have named as beneficiaries on their accounts. It is important to recognize that Wills only cover assets held in your individual name when you die. If you own assets in joint tenancy (such as real property) or have named a beneficiary on your life insurance, annuities or IRAs, then those assets pass directly to the joint owner or designated beneficiary when you die. Those assets pass outside of your Will.

Let me give you an example: Your Will says that upon your death, everything goes to your beloved spouse and if your spouse dies before you, then equally to your two children. You have two bank accounts, one of which is in trust for your son John with a balance of $150,000 and the other in trust for Mary with a balance of $125,000. If you die before your spouse, who gets the accounts? Your children. It doesn’t matter what your Will says. If you die after your spouse, what happens? John gets $150,000 and Mary gets $125,000. Again, it doesn’t matter that your Will says that your children receive equal shares.

Here’s another example: After graduating from college and before getting married, you purchased a $500,000 life insurance policy and named your parents as primary beneficiaries and your siblings as contingent beneficiaries. After getting married and having children, you signed a Will leaving everything to your spouse and children. However, you never changed the beneficiary on your life insurance policy. You die. Who gets the $500,000 death benefit? Your parents or your siblings. Your spouse and children don’t receive a penny.

So what can you do to avoid such unintended consequences? Create a revocable living trust and have the trust be the owner or beneficiary of your assets. That way, when you die, your trust will control how your assets will be distributed. And, if you become disabled, your trust will control how your assets can be spent. If you ever want to change your beneficiaries, you only have to do it in one place, rather than dealing with multiple banks and financial institutions.


Failure to Avoid Probate: Another common estate planning mistake is failing to avoid probate. Probate is the legal process by which the executor named in your Will takes the Will to the Surrogate’s Court to prove that it’s valid and to be appointed as your executor. Before that happens, your executor has no authority to carry out the wishes contained in your Will.

I like to describe probate as a lawsuit you bring against yourself and entirely pay for. Why would anyone want to do that? With probate, the named executor must follow the states rules. For example, the executor must submit required documentation and notices to the Court and obtain consents from all of your heirs stating that they agree with your Will and won’t mess with it. It only takes one disgruntled heir not to sign a waiver and consent to begin a Will contest. This ties up the estate and forces the other heirs to settle or wait for their rightful inheritances.

Probate can be difficult, costly, time-consuming and frustrating. The average probate fees are 3 to 5 percent of the total estate and the procedure typically takes up to 18 months from start to finish.

Probate also exposes your private matters to the public. Once the petition is filed, anyone can examine your Will and obtain information about your assets and family members. Most people wish to keep their affairs private and continue to protect their loved ones.

Finally, if you own real property in your own name in other states, not only will you have to go through probate in New York, but in the other states as well. Multiple probates (and multiple fees and expenses) can be eliminated by creating a revocable living trust during your lifetime and transferring your assets into the trust.


Adding Your Children’s Names to Your Accounts: Some people, especially seniors, add one or more of their children’s names to their accounts for convenience purposes. They think that if something should happen to them, their children will be able to have easy access to their funds to pay their bills. Although true in a perfect world, this can result in some dire and unintended consequences.

For example, Evelyn is an 80 year old widow who lives independently. She has checking and savings accounts at her local bank with aggregate balances of $250,000. Evelyn goes to the bank and asks the officer to add her daughters, Jill and Jackie, to the accounts. Now Jill and Jackie become co-owners on the account, even though the money is not really theirs. Jackie loses her job and runs up credit card debt of $50,000. The credit card company files a lien on Evelyn’s account and the bank is forced to pay $50,000 of Evelyn’s money to the credit card company. While Evelyn thought that she was protecting herself, she was actually placing her assets at risk to her children’s creditors and predators.

Solution: A revocable living trust will protect your assets from your children’s creditors while allowing them to pay your bills if necessary.


Leaving Money to Your Children Outright: Many Wills distribute property outright to children. This is a bad idea for many reasons. When you sign your Will, your named beneficiaries may be adults without any problems. Although everything may be ok with your family at that time, we need to be concerned about the day your die. That is the time when we will ascertain whether your beneficiaries are ok, or whether they are minors or have any problems including disability or addictions, bad spending habits, bankruptcy or creditors, business failure or divorce. If assets are left outright rather than in trust, then they are available to your beneficiaries’ creditors and predators (including the government and in-laws).

There are ways to ensure that the inheritance you leave to your beneficiaries will be automatically protected. A properly drafted revocable living trust can distribute the inheritance in separate sub-trusts for your children so that it is immediately protected from predators and creditors. The trusts can be designed differently for different children, depending upon their issues or your concerns. Your trust can control where the inheritance goes upon the beneficiary’s death. Most of our clients would prefer to see a deceased child’s inheritance pass to their other children or grandchildren rather than to a deceased child’s spouse.

If you have a disabled beneficiary (perhaps a child with special needs) who is receiving government benefits (including SSI and Medicaid), no assets should be left outright to the beneficiary. Instead, the inheritance should be left in a properly designed Supplemental Needs Trust to protect the beneficiary and the beneficiary’s entitlement to government benefits. Supplemental Needs Trusts can be separate trusts or sub-trusts within a Will or Living Trust. Stand-by Supplemental Needs Trusts are always included in all of our estate plans. We never know whether a beneficiary may become disabled and become a recipient of government benefits. Protecting the beneficiary and the receipt of benefits is critical.