The best way to be sure that your thoughtful estate planning will work as anticipated when the time comes is to walk through it with your planning attorney, from the viewpoint of a person beginning the task of administrating your estate. This post is step three in stress testing your estate plan. See our posts on step one here and step two here.
Before you start the walk through, make sure that your plan has been updated for new tax laws, recent asset growth and acquisitions, any new trusts or trust decantings, and family member changes.
During a stress test walk through of your plan, you should work with your attorney to:
- Prepare an Estate Settlement Liquidity and Distribution Analysis, especially since the current higher exemptions might fund trusts differently than you planned.
- Determine if either spouse has a Deceased Spouse Unused Exclusion (DSUE) amount from a predeceased spouse available to use and ensure these are accounted for. Note that:
- Only the DSUE from the last deceased spouse can be used to shelter asset transfers.
- A DSUE from a previous spouse, however, can be used to shelter lifetime gifts, even if the surviving spouse has remarried.
- Confirm that trust provisions allocating the burden of debts, expenses and taxes will operate as expected. In especially complex plans or situations, it is possible that the burden of these charges could unintentionally fall on persons unfairly or inappropriately.
- Evaluate the growth and increase in value of your assets. Determine any changes in your liquidity needs from when your plan was created and ensure everyone is comfortable that sufficient cash will exist to pay taxes, expenses and specific bequests.
- Confirm the assets will pass to the persons expected, and in the amounts expected, when the plan was prepared.
- Ensure that real estate and other property that is supposed to be in a trust has been titled to that trust. This is often overlooked.
- Verify the beneficiary designations for your retirement plans, IRAs and life insurance — are these people living and still a part of your plan?
- Determine any assets which are joint ownership, payable on death (POD) or transfer on death (TOD) and ascertain where they are currently scheduled to go. Will these arrangements operate consistently with the rest of the plan, or will they direct assets to unintended persons or to persons in unintended amounts.
- Check to see if individuals named as trustees have moved and determine if their new place of residence exposes trusts to taxes unnecessarily.
- Make sure powers of appointment refer to the correct trusts — this is often overlooked, especially after decanting trusts.
- Review buy and sell agreements and LLC operating agreements to confirm assets will be handled in the manner assumed.
- If the person whose planning is being tested is especially aged, in poor health or facing a terminal illness, consider preparing a draft of the estate tax return. Doing so will ensure you know where necessary documents are, and it will identify possible “red flags” that could prompt an audit and allow time for cleanup.
Stress Testing Protects Your Family from the Unexpected
You have too much at stake to be caught unprepared, and your family is too important to be left in the lurch by an estate plan you didn’t realize that you had outgrown.
Now is a great time to start conducting periodic stress tests of your estate planning. If your plan passes the test, you can really feel confident that you are ready for what life throws at you. If your plan doesn’t quite pass with flying colors, you will know what you still need to do to prepare.
Whether or not your plan passes, performing the test is time well spent in your quest to protect your family from the unexpected. Warner can help with stress testing your estate plan. Contact your Warner attorney or Mark Harder at mharder@wnj.com.
