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Senior Citizen's Guide to Baltimore

Annual Estate Planning Checkup

Many people seem to believe that estate planning is a one-time process. On the contrary, you should review your estate plan annually to determine whether it continues to meet your needs. Since you last updated your estate plan, there may have been changes to:

As a result of such changes, you may find it necessary to modify the designations that you made or utilize different planning strategies to accomplish your goals.

You can perform this review on your own or with the assistance of an estate planning attorney. Of course, if you don’t currently have an estate plan to review, it is time to consider implementing one. Below are some measures to take as part of an annual estate planning checkup.

  1. Prepare or update your will:

    A. If you don’t have a will, you probably need one.  This is especially true for parents of minor children, because a will is the only instrument that a parent can use to designate a personal guardian for minor children. If you do not have minor children, and don’t know whether you need a will, you should become familiar with the intestacy laws of your state to learn what would happen to your property if you died without a will. If you are satisfied with the plan that the state provides for you, then you do not need a will.

    B. If you have a will, make sure that you are still content with your selection of people or entities appointed to crucial positions such as executor, trustee, and guardian.  These people or entities may no longer be your best option to fill these roles. For example, the person that you selected as the guardian of your children may now be experiencing personal, financial, or medical problems. Or, maybe someone that was not an appropriate choice for executor when you first made your estate plan has now matured and would be well qualified to fill this role.

    C. You should also make sure that you still want your property to go to the beneficiaries that you have named and that you are still satisfied with the amount that you have allocated to each one.  For example, people may have been born, married, divorced, or died since you prepared your will. In addition, you may have discovered that one of your beneficiaries has special needs that would require you to give a disproportionate share to this beneficiary and to give it in such a way that this beneficiary would still be eligible for government assistance. Furthermore, you may now wish to include a charitable bequest to an organization with which you have become involved. Finally, you may discover that the majority of your assets will pass outside of your will, and that you therefore won’t have sufficient property passing through your will to fund the bequests that you made.

    D. If you have a will that was prepared some time ago, you should make sure that your tax-planning strategy continues to be effective in light of recent changes to the federal and state estate tax laws.  One important change is the amount of the federal exemption from estate taxes will increase each year for the next several years, while the state exemption from estate taxes will remain the same. Because it is uncertain what the federal exemption will be at the time of your death, you may need to implement a strategy that allows your executor greater flexibility to make certain tax decisions after your death.

  1. Review your beneficiary designations for property that will pass outside of your will such as retirement accounts, pension or profit-sharing plans, life insurance policies, and payable-on-death or transferable-on-death accounts.  Make sure that you know who you have named as your primary and contingent beneficiaries, and that you are aware of the estate and income tax consequences of these decisions. You should also compare these beneficiary designations with those in your will to be sure that overall you are distributing your property to the people that you want in the proportions that you want.
  1. Analyze your current asset allocation to determine whether your assets are titled in a way that will maximize your tax planning strategies.  People often find that their wills incorporate tax-saving trusts, but that they do not have their assets titled in a way that will enable them to optimally fund such trusts and save on estate taxes when they die. This occurs where most of the assets are in the name of only one of the spouses rather than evenly divided or where most of the assets are owned by both spouses as joint tenants (because joint property does not pass through the will).
  1. Make your own decisions for the end of your life in a Living Will.  A medical professional is legally obligated to honor your directives. A living will spares your loved ones from making such agonizing decisions and prevents the possibility of disagreement about your treatment amongst family members.
  1. Designate someone to make medical decisions for you in the event that you are unable to do so.  If you have prepared a Power of Attorney for Health Care prior to the enactment of the Health Insurance Portability and Accountability Act (“HIPAA”), you should execute a new one that specifically allows the person that you designate as your health care agent to review your medical records. Otherwise, your health care agent may not have access to information that is necessary to make sound decisions about the appropriate course of treatment for you.
  1. Prepare a document called a Power of Attorney for Property to enable someone else to handle your financial affairs if you become incapacitated.  If it has been three years or more since you executed this type of document, you should prepare a new one because certain financial institutions will be reluctant to accept this type of authority if it was granted more than a few years ago.
  1. Determine whether you should implement a gifting strategy to reduce your assets while you are living. Because you are able to give up to $12,000 per year to an unlimited number of recipients without any gift tax being imposed, gifting can be a very effective way to reduce your potential estate tax liability over time. In addition, you may find that it is beneficial to gift an asset while you are living that is greater than the annual exclusion amount, especially if it is likely to substantially increase in value during the remainder of your life.
  1. Consider your long-term care options and begin planning how to finance the care that you desire.  The type of care that you want may dictate which financing approach is best for you. Whether you intend to pay for the potential cost of care from your savings, through long-term care insurance, or by relying on Medicaid, you should plan accordingly well in advance to guarantee that your wishes will be met.
  1. Determine whether you own enough life insurance to support the people who are dependent on you financially or otherwise.  You should analyze what it would cost to replace your income and/or the services that you provide to your family. In addition, you should consider any tax consequences or other expenses of your estate, and make sure that your estate and your beneficiaries have adequate resources that will be readily available to cover these expenses.
  1. Tell your executor what you own and where to find it.  Not only will it ease the burden on your executor, but it will ensure that your beneficiaries actually receive all of the property that you own at your death and the proceeds of any insurance policies on your life.
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