TRIGGERING EVENTS IN ESTATE PLANNING: Top Six Reasons to Have Your Estate Plan Reviewed Immediately
By: Andrew J. Hoffman, Attorney
After signing a new estate plan with a husband and wife, I am frequently asked the following question: “How often do we need to come and see you to do reviews?” While many law firms sell review packages to clients, which require reoccurring monthly or annual fees, this pragmatic rural attorney does not believe that that is required. Instead, I am in favor of a sensible approach to estate plan reviews. Essentially, it is my advice to clients, that an estate plan be comprehensively reviewed upon the occurrence of a “triggering event”.
While a triggering event is not necessarily the nomenclature of all estate planning attorneys, it is a phrase that we frequently use when advising clients as to the necessity of an estate plan review. The Andrew Hoffman Law definition of a triggering event, in the estate planning context, is the occurrence of an event that is of such significance and importance, in one’s life, that they must pause and reflect upon how this materially affects them. More directly, a triggering event is when something bad happens that causes your plan to go haywire if carried out after the triggering event.
When a triggering event happens in your life, we recommend that you have your estate plan reviewed, within the first 30 days of the occurrence of the triggering event. Below are the top six triggering events, wherein you should, without question, reach out to your estate planning Attorney for advice and consult:
- Death of a Spouse.
This is the most important triggering event that can occur in one person’s life. The tax implications of the loss of a spouse, are quite significant. There are certain elections that may need to occur within specified periods of time. While losing a spouse can be extremely paralyzing, it is important to remember the reasons as to why it is important to obtain legal consultation soon. These reasons include, but are not limited to, the following:
- If inheriting your spouses’ assets is going to increase the value of your overall estate beyond the federal estate tax exemption limit, you may want to disclaim certain assets so that they pass directly to you and your spouse’s descendants (your kids). This must occur within 9 months of your spouse’s death.
- If you are wanting to add your spouse’s federal estate tax exemption to yours, this must occur within 9 months of your spouse’s death by filing a Federal Estate Tax return (706). This is called “portability”.
- Your spouse, in all likelihood, was your Personal Representative, Successor Trustee, Power of Attorney, and Healthcare Power of Attorney. If your spouse predeceases you, your estate plan will need comprehensive updating, as your spouse is no longer able to act for you. While you may have a successor named, an update is recommended.
- In the event your spouse dies, owning cattle and equipment, you may want to probate their estate, so that the surviving spouse can receive a step-up in basis, and transfer assets accordingly.
- Life insurance policy benefits may need applied for.
- Social security may need applied for.
There are many other reasons as to why this is a triggering event. The above is a small sampling of why it is so important that you obtain legal counsel, upon the loss of a spouse.
- Loss of a Child.
It is unthinkable that a parent would have to bury a child. However, and unfortunately, this occurs every year to many Americans. Whether it is a small child due to an accident or illness, or an adult child who leaves behind grandkids for you, this a very real event that occurs in many people’s lives.
The loss of a child is a significant triggering event. Usually a child is one of the beneficiary’s of your estate. Therefore, you will want to review your plan so as to make sure that their share, now passes to either their children (your grandchildren) or to your other kids. If your child was an only child, you will want to review the implications of your assets going to somebody who may not be a child, such as a niece or a nephew (which can increase the inheritance taxes). Often times, if an elderly parent loses a child, their grandchildren will receive that child’s inheritance. However, if that child is a minor, then their parent (your daughter-in-law or son-in-law) would be charged with the care and custody of those assets. Often times that scenario can be avoided, by holding your grandchild’s assets in a trust, until they reach a certain age. However, that must be set up in advance.
Additionally, a person frequently has their children named as a Successor Personal Representative or Trustee, or Successor Power of Attorney. In those cases, you will want to update your planning documents so that you have replacement fiduciaries named. There are other important considerations as well, however these are the highlights.
- The Sudden Disability of a Beneficiary.
Sometimes life is just not fair. If you have a child who suffers a traumatic brain injury in an automobile accident, it is possible that that child may be on Medicaid for the rest of their life. Or, alternatively, perhaps you have a grandchild who has been recently diagnosed with a disability or illness. If the illness is of such a type and kind that they may become permanently disabled in the future, and it is foreseeable that they may be a beneficiary of your estate plan, it is important that you get your estate plan updated.
Assume for a moment that you have a son or a daughter in an automobile accident and they sustain a traumatic brain injury. Assume also, that you do nothing to update your estate. When you die, if that child inherits a fractional interest in your estate, and if that child is on state Medicaid, that child will be taken off state Medicaid, and instead their share of your estate will be used to pay for the care that the government would have otherwise paid for. This result could have been avoided with a well drafted estate plan that included supplemental needs trust provisions.
Speaking from personal experience, I have seen firsthand how a person can have kids healthy one day, and medically challenged the next. In 2011 my son was diagnosed with a pediatric brain tumor. Today, thankfully, he is 13 years old and doing well. However, children with pediatric brain tumors often times, if they are able to reach adulthood, can have severe permanent mental and physical disabilities. I frequently use this example, when counseling clients, to have stand-by supplemental needs trust provisions in their planning documents, even if they don’t currently have a child or grandchild that are suffering from any ailments. The truth is, it can happen in a New York second.
- The Death or Disability of a Fiduciary Appointment.
When Andrew Hoffman Law prepare an estate plan, this frequently includes a Revocable Living Trust, a Pour-Over Will, a Healthcare Power of Attorney, a Durable Power of Attorney, as well as other ancillary documents. Inside each of the aforementioned documents, individuals are named to be in charge of your finances and/or healthcare, in the event that you are unable to act or if you should die. If, for example, you name a Trustee or a Personal Representative, who dies or becomes disabled, we recommend that you update your estate plan immediately to account for this. Recently I was assisting an elderly gentleman with his estate plan that our office did not prepare. When a different attorney prepared his planning documents, he had a financial power of attorney that named only his wife as his financial power of attorney and his healthcare power of attorney. However, this elderly gentleman’s wife was in the nursing home and had Alzheimer’s. I informed him that it was critical that he update his plan immediately, so that his family would not need to get a conservatorship appointed over him, should something happen to him. It is always a good idea to name three successors to all of your fiduciary appointments, to avoid this from occurring.
- The Birth of a Child or Grandchild.
It is always an exciting time when a new child enters the world. If you are a parent, and you either have no will, or have a pre-existing will, it is a good idea to freshen up your estate plan to include the name of your new child. Not only do you want your new child to be a beneficiary of your estate plan, but you will also want to include guardianship provisions inside your Last Will and Testament. Likewise, you will want to include trust provisions. These guardianship and trust provisions are important in case something happens to you while your child is a minor. It is critical that a child have a guardian nominated for them in your Last Will and Testament, so that in the event that something happens to the child’s parents, the court will be able to carry out your wishes.
Likewise, if you have a grandchild that is born, it may be a good idea to freshen up your estate plan as well. It is important, as a grandparent, that you make provisions for assets for your grandchildren to be held in trust, in the event that they are minor children and they inherit from you, because their parents predeceased you.
- Law Changes.
Frequently, state and federal legislative bodies adopt law changes so serious that they can create consequences to a person’s estate plan. A few years ago, LB268 caused a sort of panic among estate planning Attorneys. This new law created a new Medicaid lien that would apply to any deed transfers to children with a life estate reserved. This was a monumental moment, in Nebraska’s estate planning attorney’s lives.
Another monumental shift occurred in December of 2012. With the fiscal cliff looming, on midnight of December 31, 2012 the federal estate tax exemption was scheduled to crash from $5 million dollars to $1 million dollars. This had several panicked estate planning Attorney’s and their clients, contemplating whether or not they should gift a sizable portion of their assets away to their children. Fortunately, on January 2nd, 2013, the American Taxpayer Relief Act (“ATRA”) was passed, and everyone was saved. Currently, there is an $11.4-million-dollar federal estate tax exemption. However, this is scheduled to be reduced, on January 1st, 2026. However, because the federal estate tax exemption is a political football, it is possible that, after the 2020 Presidential election, this could face yet another change. Stay tuned.
It is important to stay dialed in on those laws that could potentially affect your estate, which could include long term care issues, estate and inheritance tax issues, income tax issues, and federal estate tax issues. If a law change or shift is causing those around you to consider an estate planning review, that would be a good sign that you should have an estate planning review scheduled.
It is never a bad idea to have your estate plan reviewed. We do not require clients to have annual or semi-annual reviews. However, we do think that frequent reviews are good, so as to ensure that your trusts are properly funded, beneficiary designations are correct and other items are appropriately taken care of. We work very hard to prevent probate, in our practice. We want to be able to help you do that.
Please note that Andrew Hoffman Law provides free estate plan reviews for both existing clients, former clients, and new clients. We would be delighted to sit down with you, on a complimentary basis, and review your estate plan. Based on that review, we can either make suggestions or changes, or simply encourage you to keep your plan the way that it is.
It is important to be a good steward when you have assets or minor children. Your legacy depends on it.