What are Risks of a DIY Estate Plan?

The number of online tools purporting to create estate plans easily and cheaply makes it tempting to forgo working with an estate planning attorney, but the long-term consequences of a DIY estate plan could be disastrous. A recent article from mondaq, “Risks of DIY Estate Planning” takes a close look at what can go wrong.

Estate and tax laws are both complicated and nuanced. Without an experienced estate planning attorney overseeing the creation of an estate plan, a homegrown plan isn’t likely to achieve the desired results. In addition, chances are good it won’t follow state law. If a last will and testament is found to be invalid during probate, it’s as if there was no will at all.

Estate planning needs to be created for each person’s unique situation. Do family members get along, or should the estate plan be designed to be litigation-proof? Are there large assets held in trust or corporations with complex tax consequences? If there are family members with special needs, have the proper trusts been established to protect them over their lifetimes?

Tax planning is often a significant part of an estate plan. Depending on your state and where you own property or businesses, your estate must consider many different types of taxes. Transfer tax, capital gains taxes, income taxes, and estate taxes are just a few of the taxes to be addressed. If the estate plan doesn’t dovetail with tax liabilities, beneficiaries could find themselves with a far smaller inheritance than anticipated.

Today’s modern family is not as straightforward as in the past. Families come in many different variations, all of which have their own special challenges. Blended families are fairly common, and a traditional “I love you” will, where one spouse leaves the other everything and vice versa, may result in some children being disinherited. Same-sex married couples with children need to be sure their children, biological and adopted, are protected with an estate plan designed to protect all members of the family.

Comprehensive estate plans should address asset distribution issues, guardianship for minor children, and name an executor and heirs. A Power of Attorney is needed so spouses may be involved in each other’s healthcare. Living Wills are required to clarify wishes for end-of-life care, as are Advanced Medical Directives. There are a host of documents to be created and decisions to be made, all of which require the knowledge and experience of an established estate planning attorney.

Reference: mondaq (July 1, 2024) “Risks of DIY Estate Planning”

Will Proposed Tax Hikes Have an Impact on My Estate Planning?

President Biden’s tax proposals are at the center of what the White House estimates is a $3 trillion deficit-reduction plan. They will be immediately rejected by Congressional Republicans. However, the ideas set up Democrats’ approach to the debt-ceiling fight later this year, as Republicans are gearing up to ask for spending cuts.

A major change would almost double the rate of the capital-gains tax, and applying an additional surcharge to fund Medicare, which would mean taxes on investments could rise to almost 45%.

Bloomberg’s recent article entitled, “In Biden’s Tax-the-Rich Budget, Capital-Gains Rates Near 45%,” examines the details of the tax proposals in the budget request that the White House released recently.

Capital Gains. The budget proposal would jump the capital-gains rate to 39.6% from 20% for those earning at least $1 million to equalize the taxation of investment and wage income. President Biden also wants to up the 3.8% Obamacare tax to 5% for those earning at least $400,000 to support the Medicare Trust Fund. As a result, the richest would pay a 44.6% federal rate on investment income and other earnings. The plan also calls for taxing assets when an owner dies. This would end a tax benefit that let the unrealized appreciation go untaxed when transferred to an heir.

Corporate Taxes. Trump’s 2017 corporate tax cut would get significantly rolled back, bringing the top rate to 28% from 21%. The proposal also calls for increasing the taxes US companies owe on their foreign earnings to 21%, doubling the 10.5% included in Trump’s tax law.

Carried Interest. The carried-interest tax break used by private equity fund managers to lower their tax bills would be struck under the Biden plan. Under current law, investment fund managers can pay the 20% capital-gains rate on a portion of their incomes that would otherwise be subjected to the 37% top individual-income rate.

Rich Retirement Accounts. The plan would close a loophole that allows the wealthy to accumulate savings in tax-favored retirement accounts intended for middle earners. In addition, Biden would limit the amount taxpayers with incomes over $400,000 can hold in Roth individual retirement accounts.

Estate, Gift Taxes. Bolstering the tax rules on estate and gift taxes would make the system harder for the wealthy and trusts to avoid taxes.

Reference: Bloomberg (March 9, 2023) “In Biden’s Tax-the-Rich Budget, Capital-Gains Rates Near 45%”

What Is an Estate Planning Checkup?

The start of the year is the time to review and revisit your estate plan. Just like going to the doctor and dentist for regular exams, it’s basic self-care. A recent article from Kiplinger, “Need an Estate Planning Checkup? Now is the Perfect Time,” advises having an annual checkup with your estate planning attorney before anything goes wrong.

Estate planning is about people. It ensures that loved ones will be protected when we are no longer here. It names someone we trust to administer our estate and follow our wishes. It also ensures that no one is left out or no one is wrongfully included.

After the holiday season of family gatherings is a good time to review the family situation. Children have grown into adulthood. Perhaps they’ve married and had children. What we planned to leave for them as minors may be different now. If your family suffered a loss last year, it may be time to reallocate funds or change beneficiaries.

This is the time to evaluate who you have named as an executor or entrusted with powers of attorney. They may have had their own health issues, suffered memory loss, or undergone their own life changes. These should also be reviewed when creating a new will or trust.

Property values have probably changed over the years. Real estate acquired decades ago may have appreciated far more than anticipated. If the intent is to leave equal shares of assets to beneficiaries, the new value of the property needs to be considered.

Depending on your assets, you may need to engage an expert to provide current valuations for real property, artwork and any other high-value assets. If you expect to see significant changes in the coming year, from selling property or making other adjustments, don’t wait until next year to order a new valuation. The more current your numbers, the better your estate plan.

Tax laws have changed a great deal in recent years. An experienced estate planning attorney will allow you to maximize the estate that you leave. Estate tax and gift taxes have been adjusted for inflation, so you may be able to leave larger gifts to children and grandchildren.

Your estate plan checkup should include a review of recent tax law changes, and a look at the legal environment for the coming year. Discuss how aggressive you want to be with your estate planning. The same goes for life changes which may have legal consequences. All of this needs to be discussed in a candid manner with your estate planning attorney.

You may leave your meeting with a to-do list, or you may find your estate plan still works. Either way, you’ll feel better after your estate plan checkup.

Reference: Kiplinger (Jan. 30, 2023) “Need an Estate Planning Checkup? Now is the Perfect Time”

When Should You Update Your Estate Plan?

Updating an estate plan is not usually the first thing on one’s mind when large life events occur. However, if you fail to update your estate plan, over time the plan may not work—for you or your loved ones. Reviewing estate plans at least once every three or four years will help to reach your goals and protect your family, explains the article “Do I Need to Update My Estate Plan?” from Arkansas Business.

Two key documents are used to distribute your assets: your last will and testament and trusts. As your children and other family members mature, those documents should change as may be needed.

If you have a revocable trust, you need to review the dispositive provisions and the trust funding. One of the biggest mistakes in estate planning, after failing to have an estate plan, is failing to fund or manage the funds in a trust.

Trusts are created to avoid probate and establish a process for distributing assets in case of disability or death. However, if assets are not retitled to be owned by the trust, or if the assets don’t have an appropriate beneficiary designation to transfer assets to the trust at the time of your death, they won’t perform as intended. As new assets are purchased, they also need to be incorporated into your estate plan.

Relationships you have with people who have responsibilities for your estate plan may change over time. Those need to be updated, including the following:

Trustee—The person or institution administering and managing a revocable trust, when you can no longer do so.

Guardian—The individual who will have legal authority and responsibility to raise your minor child(ren).

Executor—The person who is in charge of administering and managing your estate.

Health Care Agent—The person you authorize to make medical decisions in the event of incapacity.

Another common point of failure for estate plans: neglecting to update beneficiary designations for assets like life insurance, retirement plans and any asset that customarily passes to an heir through a beneficiary designation.

A regular review of your estate plan with your estate planning attorney also allows your plan to incorporate changes in tax laws. The last few years have seen many significant changes in tax laws, and more changes are likely in the future. Strategies that may have been extremely effective five or ten years ago are probably outdated and might create costs for your heirs. A review with an experienced estate planning attorney can prevent unnecessary tax liabilities, unexpected inheritances and family feuds.

Reference: Arkansas Business (Sep. 2021) “Do I Need to Update My Estate Plan?”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

What are Risks of a DIY Estate Plan?

Will Proposed Tax Hikes Have an Impact on My Estate Planning?

What Is an Estate Planning Checkup?

When Should You Update Your Estate Plan?

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What are Risks of a DIY Estate Plan?

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