Change is inevitable. Life is usually defined by change. In estate planning we do everything we can to prepare for your passing but change still happens.
Some of those changes are out of our control. State law sometimes changes and federal law sometimes changes. One significant change will happen next year when the current federal estate tax laws will expire. Presently when someone dies in the United States they can give away almost 13 million dollars to their heirs without paying any federal estate tax. Anyone who gives away more than a million dollars beyond that amount will pay a 40% tax. The bill in Congress that chose this amount had a sunset provision forcing it to expire in 2026. When the bill expires, the new maximum allowed will be approximately five to seven million. This maximum gift is applied to a single person. This means that a married couple can give away twice as much and still avoid a federal tax. To do this successfully the surviving spouse will be required at the death of the first spouse to make a claim with the IRS on the deceased spouse’s tax exemption. The deadline to make this claim on behalf of your spouse is 5 years from the date of their death. Most of my clients won’t have to worry about any of these provisions because their estate does not exceed five million dollars.
Other changes are within our control. For example, many seniors after retiring, or after the death of a spouse, will choose to sell their home and purchase something smaller. This gives them access to a portion of their equity and allows them to choose a home designed for their current needs. A change like this can make sense, but it can also disrupt your estate plan. Fortunately, we can always update your estate plan to meet those changes whether you created the change or state and federal laws changed on you.
Our ability to make changes will end at different times based on your own health and the current documents you have already signed. For example, if you chose to create an irrevocable trust and place your home in it, this is normally going to be a permanent change in regards to your estate plan. Property placed in an irrevocable trust, is intentionally placed out of your reach and normally cannot be returned to your control.
Most trusts that I encounter are not irrevocable trusts. Instead they are revocable trusts with provisions that make it irrevocable after something specific happens. Nearly all trusts will become irrevocable upon the death of all of the signers of the trust. State law allows you to make changes to your estate plan as long as you have capacity to understand what you are signing.
If you have a diagnosis of dementia or other mental health issues, and an heir objects to any changes that appear in the document you sign after being diagnosed, your document may end up being ruled void by a judge after your death. This reduces the time you have to make changes to your estate plan from anytime before your death, to the time period prior to loss of your mental capacity. No one normally knows when they are going to die or when they are going to lose their mental capacity to sign. Because of this, I encourage all of my clients to return regularly to review their estate plan and discuss any changes they feel are necessary based on current events in their lives and current tax law. Generally, returning to review your plan every 5 to 10 years is recommended.
On occasion, I will encounter estate plans created before the year 2000 or soon after, that contain provisions designed to meet the tax laws of the ’80s and ’90s. These trusts are usually designed to become irrevocable, at least in part, at the death of the first spouse. That leaves the surviving spouse with their hands tied and the Trust sometimes prevents them from changing heirs or accessing assets. These trusts are often called “A-B trusts”, and they are no longer necessary for most people who have less than 5 million dollars, as mentioned above.
If you have a trust created before 2010, I highly encourage you to have your trust reviewed by an estate planning attorney as soon as possible. Normally you will want to replace the old trust with a new one that allows you, or your surviving spouse, to make changes as needed.
If your trust was created before 2015, you are now overdue for a checkup with your attorney. Just as dentists recommend regular checkups to avoid hidden cavities, you don’t want to go more than 10 years without reviewing your plan with an estate planning attorney. There is no knowing what may have changed to upend your plans.
I often see the situation where someone has created a trust and placed their home in the trust. But they later sold the home in the trust and purchased a new home, which they forgot to put in the Trust. When this happens, your heirs will still be forced to go to probate when you die. Regular checkups will include reviewing county land records to verify that all of your current real estate is held by the trust or an LLC. Our goal is to avoid having your personal name on any piece of real estate at your death.
Also, LLC’s have their own issues that need to be dealt with properly to assure transfer to your heirs outside of probate. If you own an LLC, and have placed real estate in it, give us a call to discuss how you can transfer that LLC outside of probate.
Ideally, we want to make any necessary changes to a trust prior to the death of the first spouse, however on occasion we are able to make changes after the first spouse has died, even when the old A-B trusts are involved.
Other common changes to estate plans are based on changes in your family. Sometimes your children will remarry. In other cases, relationships with specific heirs have deteriorated over time and you feel differently about whether or not this person will inherit, and how much.
Sometimes clients will choose their hiers based on need and determine that one child who is financially successful is not going to need the full equal portion of their inheritance.
I am not advocating any particular division of your property. I am simply describing what I have seen others do when they encounter this situation. Most of my clients choose, in spite of whatever is going on in their family, whether success or tragedy, to give their children equal shares at their death.
Keep in mind, any change away from equal shares at death, may invite a challenge from the heir that has their share reduced. If you wish to make a change like this, especially if you are beyond retirement age, please consider meeting with your doctor and requesting that a note be placed in your medical record describing your capacity to sign a will or other estate planning document.
If you do this close to the date that you sign an update, it will be very difficult for a disgruntled heir to challenge your changes in court.
Prigmore Law offers free consultations to discuss your current estate plan and any changes that may have occurred in your life or in the federal and state tax codes that may prompt you to update your plan. Give us a call today to make an appointment to review your plans.
If you don’t have a plan, now is a great time to create one! Prigmore Law offers interest-free financing when needed to create your estate plan. This allows you to make monthly payments until your plan is paid off and you receive your documents. Give us a call today at 801-210-1058.
Change is everywhere! This law practice has undergone some changes since the beginning of the new year as well. I have moved my main office to Orem, just east of the University Mall.
For the convenience of my clients south of Provo, I will continue to maintain a satellite office in Spanish Fork. The satellite office just won’t have as many bells and whistles as the main office in Orem. One of the main attractions of my new Orem office is our glass door fridge with 30 different drinks to choose from when you come for an appointment.
My experience in this new office has been excellent and I anticipate that you will enjoy meeting with me there. So please consider making the trip when you schedule an appointment!
NOTE:
THIS ARTICLE DISCUSSED GENERAL PRINCIPLES OF LAW. PLEASE DO NOT TAKE ACTION BASED ON THIS ARTICLE ALONE. ONLY AN ATTORNEY CAN DISCUSS YOUR SPECIFIC SITUATION WITH YOU AND THEN HELP YOU DETERMINE YOUR BEST COURSE OF ACTION.
