5 Questions for Updating Your Estate Plan Part II

Last week, I shared with you Part I of my list of 5 questions for updating your estate plan. Today we’ll pick back up at number 3…

3. Here’s the third question about updating your estate plan… Where are you spending time?

Each state has its own laws governing estates, trusts, property ownership, and powers of attorney.

In general, the state in which you are considered to be a resident or domicile is the state where your will is probated and that governs your powers of attorney.

The medical power of attorney and related documents has to be valid in the state you’re physically in when medical care is needed.

Of course, states have different tax laws, and a plan that made tax-sense in one state might not be wise in another.

Your estate planner needs to know if you moved or are spending more time out of state than you used to (perhaps spending winter or summer in a more hospitable climate).

Discuss your travels and residence with an estate planner.

The planner will determine which state is considered your current legal residence and domicile.

The planner also might recommend relatively small changes that can establish your residence in the more desirable state for your estate.

You also need to avoid the very undesirable position of being considered a legal resident of two states.

The estate planner should know more than almost anyone else about you and your finances.

4. Here’s the fourth question about updating your estate plan… Where is your property?

Real estate is subject to probate and related laws in the state in which it is located, regardless of where the owner lives.

Other property also might fall under the laws of another state instead of your home state.

If you bought property in another state, your estate will have to go through probate in at least two states.

There are ways to avoid this expensive situation.

Your planner might recommend putting the out-of-state property in a trust or limited liability company or some other strategy.

Purchasing property or a business that’s located in another state should trigger a visit to your planner.

5. Here’s the fifth question about updating your estate plan… How old is your plan?

I’ve already listed life changes that should trigger a review of your estate plan.

But there are other events, some of which you might not even aware of, that make your plan obsolete.

There’s the federal tax law, of course.

Your state law also can change.

Many states have been revising their probate and trust laws in recent years.

Changes in Medicare and other seemingly unrelated laws and programs could affect your estate plan.

In addition, estate planners always are refining their strategies and finding better ways to do things.

An example is in the standard trust.

It used to be commonplace for a surviving spouse or other primary beneficiary to receive only the income earned by the trust.

Principal and capital gains were reserved for the next generation or two.

But with today’s low interest rates, income doesn’t amount to much.

Most trusts drafted now pay the first generation income beneficiary a fixed percentage of the trust or a dollar amount annually without regard to whether it is paid from income, capital gains, or principal.

Most laypeople aren’t aware of all the changes that make revising your plan a good idea.

A general rule is that if your plan is more than five years old, you probably need to touch base with your planner.

When your plan is more than 10 years old, you definitely need it reviewed.

If it is less than five years old, review the factors mentioned here and visit the estate planner if there is any doubt your estate plan is up-to-date.

The problems caused by an out-of-date estate plan all will be resolved if you don’t revise the plan.

But the courts will resolve them.

This will cost your estate money and delay the resolution.

And the resolution might not be anything like what you would have preferred.

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