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Too often, we find clients have not matched their asset ownership and beneficiary designations to their estate plan documents or not updated those documents for changes in circumstances. This can cause problems, like having to file with the probate court at death, having the wrong person in a key role or even paying unnecessary estate taxes.
Here is an example on an ownership error: the couple owns most assets jointly. This means that their revocable trusts are never funded so they will fail to use the available estate tax credits at the first death, and they will probably pay more estate taxes at the second death than they could have. Having assets pass to a spouse may simplify their life but that may cost their children more in estate taxes.
Another example would be owning assets individually rather than in a revocable trust. This means the personal representative must file with the probate court to transfer assets. If all assets were owned by the trust instead, the time and expense of a probate court filing would be avoided, and survivors would have the benefit of the assets in the trust immediately. An alternative would be placing transfer on death or TOD instructions on bank and investment accounts, much as one provides beneficiary designations on IRAs.
Finally, if your relationships with the people named in your will and trust have changed, not updating could mean the wrong people are involved in your estate when you die, leaving a mess for your survivors.
As we mentioned in a prior e-mail, Massachusetts changed the estate tax law last year, so we now have a true exemption of $2 million. This may tilt your approach more toward planning to avoid capital gains rather than estate taxes. Regardless, please be sure that your asset ownership and designations work with your documents.
Related: Should Your Estate Plan Try To Avoid Income Taxes Rather Than Avoid Estate Taxes?