Sunday, January 4, 2015

Review Your Estate Plan for a Secure New Year

As we bask in the afterglow of a joyous holiday season and turn our thoughts to the new year a review of our estate plans is an essential step to make sure our assets are protected from creditors, taxing authorities, nursing homes, and others who pose a potential threat to the financial well-being of ourselves and our families. 

1. Review and update beneficiary designations on insurance policies, 401(k) plans, and IRAs.

Did you get married this year? Have a child? Get divorced or start a new job? Now is a great time to take stock of the beneficiary designations to make sure that these assets, that pass outside of probate, are directed to go to the person you want. If you entered a second marriage and either of you has kids from a previous relationship you also might consider whether a qualified terminable interest property QTIP trust is helpful to protect those children's inheritance. 

2.Update advanced heathcare directives and guardianship designations. 

The person or persons nominated as your children's guardian need not be the person you choose to otherwise serve as trustee or executor or your estate. Make sure your agent and doctors all have copies so that they know your wishes in the event of an emergency. New in Rhode Island are Medical Orders for Life Sustaining Treatment or MOLST forms. These forms, which supplement a durrable healthcare power of attorney, are printed on neon pink paper and filed with your physician. Once this form is filed it must be followed by all of your medical providers and in any Rhode Island healthcare facility where you go for care.   

3. Review your will and trust documents to make sure they still do what you want them to do. 

Are your basic estate planning documents designed to protect your home and other assets from estate taxes, probate fees, or nursing home expenses? Will they still accomplish this goal? Has someone explained to you how changes in state and federal law will impact your will and trust documents?  While Massachusetts rules have remained largely constant over the past two years, there are at least two major changes to estate planning rules that Rhode Islanders need to worry about. One change eliminated the so called cliff that subjected the entire value of a Rhode Island estate to the state estate tax if the total value of the estate exceeded a certain inflation adjusted value. Now, state estate taxes are only paid on the "excess" value of the estate above $1,500,000. The second significant change is to no longer permit use of the so called "lady bird" deed in qualifying for Medicaid nursing home coverage. While those who had transferred thier title prior to July 1,  2014 are grandfathered, that particular option is no longer available to those who are looking at asset protection estate plans. Understanding how these and other changes impact your existing estate plan will ensure that it still meets your goals.

4. Check will and trust distribution ages.

By law beneficiaries of your will, will inherit the sums you left for them at the age of 18, unless your documents specify otherwise.  For this reason, many people designate that a child's inheritance should be held in trust until they are 25 or 30 in the hopes that they have sowed any wild oats and are just a little bit more responsible. 

5. Revisit your life insurance coverage.  

Many have life insurance policies that are too expensive for the benefit received or are otherwise misaligned with thier financial plan and interests. Others are woefully underinsured, exposing thier family and loved ones to unnecessary risk of financial ruin if something should happen.