Creating an estate plan is often an emotional exercise. For some individuals, engaging in thoughtful decision making regarding the orderly distribution of one’s assets provides a sense of peace, satisfaction, and even pride. For others, the experience may be daunting as they come face-to-face with their own sense of mortality. In either situation, once the documents have been signed, clients tend to settle in with a sigh of relief, dust off their hands, and view their estate plan as a “one-and-done” event.
But the reality is we live in the modern era where change is constant. In like manner, the planning process must be fluid for an estate plan to maintain its relevance over time.
With an evolving landscape of federal and state laws, revisions to the federal tax code, reductions in personal fortunes, the advent of digital assets, the reshaping of family dynamics, and changes in major life events, it’s easy to understand how one’s estate plan can become outdated and malfunction when the times comes.
To help clients and their financial advisors spot situations that might trigger the need to update their documents, I’ve prepared five conversation starters.
Have You Planned for the Disposition of Your Digital Assets?
One common misconception about estate planning involves the identification and proper disposition of one’s digital assets.
Ten years ago, few individuals gave much thought to how their online behavior was contributing to the gradual accumulation of “digital assets.” From shopping online, to applying for social security retirement benefits and enrolling in Medicare, to posting photos of the grandchildren on Facebook, most adults (including most of today’s seniors) are accumulating digital assets at a rapid clip by using the internet for personal business as well as for social interaction.
To gain a deeper understanding of the progressive digital behavior of seniors, I asked one of our clients to share her experience. Describing it as “digital creep,” she stated that ten years ago she began keeping an Excel spreadsheet containing her usernames and passwords for approximately a dozen online accounts. Today, her password list has grown to nearly 100. “I’m always searching for accounts to delete from my spreadsheet, but most continue to have relevance to my life,” she said. Her online accounts range from banking and financial investment accounts, to Social Security and Medicare accounts, to online shopping, frequent flyer programs, Facebook, and Netflix.
Unfortunately, many individuals have the false impression that simply maintaining a record of their online accounts and passwords will facilitate the disposition of their digital assets once they’ve passed on. But as Professor Kirsten Waldrip of the College for Financial Planning cautions in a recent article on this topic, “Many people think that they can simply leave behind a list of usernames and passwords, not knowing that the executor will technically be committing a crime by accessing the accounts later on.”
We recommend that clients contact our office so we can determine whether their estate planning documents grant trustees or fiduciaries the proper authority to access, manage, and delete digital assets. It’s also important to ensure that digital assets be administered as quickly as possible following the owner’s death in order to minimize the chances that the deceased person’s information will be stolen.
Has Your Attitude Toward Charitable Giving Evolved in New Directions?
According to a series of Gallup polls, more than 80 percent of Americans support one or more charities each year. Although tax considerations play a role, charitable planning for the purpose of eliminating or minimizing one’s tax burden is typically not the primary motivator for most estate planning clients.
Based on what we see in our practice, clients donate to charitable causes for deeply personal reasons. While one’s religious beliefs is a primary motivating factor, some individuals are driven to support certain organizations based on human emotions triggered by a specific event or experience. For example, Central Florida witnessed an outpouring of charitable generosity following the June 2016 tragedy at an Orlando nightclub. Many individuals who were struck by grief expressed their emotions by giving generously to funds established for benefit of the victims’ family members.
We find it normal that clients sometimes experience a shift in attitude regarding the charitable causes that are near and dear to their hearts. Whereas years ago they may have wanted to leave a portion of their assets to their alma mater, today their philanthropic focus may have shifted to contemporary causes like stemming the global epidemic of human trafficking.
We encourage clients to examine their current beliefs as it relates to charitable giving and ensure that their estate plan is aligned with that thinking.
Has Your Trust Been Updated to Reflect Changes in Family Relationships?
One of the most common reasons that clients decide to update their estate plans involves a change or breakdown in family dynamics. Often these changes involve a beneficiary’s divorce.
For example, your daughter may have been happily married when you created your estate plan. But as the years went by, the marriage faltered under the weight of your son-in-law’s excessive spending and recreational drug use. So how do you protect your daughter’s inheritance from falling into the hands of a spendthrift husband with a drug problem, or from a divorcing spouse? Instead of choosing to leave your daughter’s inheritance to her outright, or making distributions at specific ages, such as 25, 30 or 35, you may want to revise your trust to stipulate that the assets are to be used only for your daughter (not for the son-in-law), and that in the event of her death, any remaining assets would be passed directly to your grandchildren.
It’s important to be mindful that once your daughter receives her inheritance outright, the money will be subject to creditors’ claims and possibly a divorce settlement.
Is Your Durable Power of Attorney Current and HIPAA Compliant?
A power of attorney is one of the most critical components of one’s financial and lifetime planning, irrespective of age or income status. Although an individual may have gone through most of his adult life without having had to use a power of attorney, he should consider himself blessed, if not lucky. The chances of being involved in an accident or becoming temporarily unable to manage one’s own affairs are quite real and can have serious financial consequences.
If you already have a Durable Power of Attorney document, the next question to ask yourself is whether it is up-to-date. The Florida law controlling powers of attorney changed drastically on October 1, 2011. The new Florida Statute regulating powers of attorney requires that the principal specifically grant certain authorities to the attorney-in-fact. The principal must sign or initial next to the specific “superpower” being granted to the attorney-in-fact. These superpowers, or “authorities requiring separate signed enumeration” are explained on our website. In order to be sure your power of attorney is valid when the time comes, we recommend having your documents reviewed.
Also, as part of a comprehensive estate plan, it is necessary to ensure that documents such as your Durable Power of Attorney, Health Care Surrogate, and Living Will include the necessary HIPAA release authorization. This ensures that your designated family member or health care surrogate will be able to access your medical records and make decisions on your behalf should the need arise.
Are Your Beneficiary Designations Current?
Many clients are not aware that there can be far reaching implications for failing to update their named beneficiaries. Some erroneously believe they can depend on a will or living trust document to override outdated beneficiary designations. And some are not aware of the need to also name secondary beneficiaries.
The failure to remove a previous spouse’s name and insert the current spouse’s name as beneficiary of an IRA account will essentially deprive the current spouse and/or the children from receiving their inheritance.
Outdated or incomplete beneficiary forms involving life insurance policies, pensions, annuities, tax qualified accounts and other assets can trigger unwanted and costly probate proceedings and risk one’s assets going to unintended individuals.
We encourage clients and their advisors to conduct an inventory of the beneficiaries on all financial accounts that require a designated beneficiary. It’s not uncommon for an account owner to have overlooked the need to update the beneficiary on a 401K account following a divorce that took place many years ago.
Creating an estate plan requires a substantial investment of one’s time and emotions. In order to ensure that your estate plan is relevant when the time comes, take a few moments to think through any major changes that have occurred in your life – or the lives of your beneficiaries. Feel free to call our office if you have questions or if you would like us to review your documents to identify the need for any necessary updates.