Year-End Estate Planning Tips for 2021

 

As 2021 comes to a close and we prepare to ring in the New Year, many of us are likely reflecting on the past year and thinking ahead about what 2022 might bring. Some of us may be letting out sighs of relief knowing that a new year brings the opportunity for a fresh start, while others might be overwhelmed by the prospect of facing new challenges. No matter what your outlook is for the year to come, it is important that you put your health, your finances, and your family’s future well-being first by making sure that you have a plan in place for all of 2022’s “what-ifs.”

Reflect

As you reflect on the past twelve months, consider taking a mental inventory of any of the changes that may have occurred in your life. Specifically, take a look back and determine whether you experienced any of the following major life events:

• Marriage, divorce, or remarriage
• The birth or adoption of a child, grandchild, or great-grandchild
• The death of a spouse or another family member
• The illness or disability of you, your spouse or another family member
• A child or grandchild reaching the age of majority
• Sizable changes in the value of assets you own
• The sale or purchase of a principal residence or second home
• The retirement of you or your spouse
• Receipt of a large gift or inheritance

All of these events trigger a review of your estate plan. Even if none of these significant changes have taken place in your life, you may still find that your beneficiary and fiduciary designations need to be updated. You can use the following questions as a guide:

• Have any individuals named as beneficiaries or fiduciaries (e.g., Executor, Trustee) passed away?
• Are there individuals or charitable organizations that should be added or removed as beneficiaries?
• Have there been marriages or divorces that would impact your estate plan?
• Is there a beneficiary with special needs receiving government assistance?
• Do you need to protect beneficiaries from a divorce, creditor issues, substance abuse or gambling issues?
• Has your Power of Attorney changed or does it need to be updated?
• Do you want to update any of your intentions in your Advance Directive in regard to your medical care?

After you have thought about your beneficiaries and fiduciaries, think specifically about any minor children included in your estate plan. Determine whether any of your children have reached the age of eighteen and, if so, whether they have a named guardian in your estate plan that they no longer need. Additionally, if your child became an adult in 2021, now is the perfect time for you to start the conversation with them about their own estate plan and serve as a model for them to get started. A good first step is discussing having your child appoint you to act on their behalf in a Power of Attorney or Advance Medical Directive.

Lastly, as we are in the gift-giving season, think about financial gifts that you would like to make. According to the IRS, the annual gift tax exclusion amount is $15,000 for 2021. In 2022, the amount is set to increase to $16,000. Additionally, the lifetime exclusion was raised to $11.7 million in 2021. This is important because the annual federal gift tax exclusion allows you to give away in 2021 up to $15,000 each to as many people as you wish without those gifts counting against your $11.7 million lifetime exemption. However, before taking any action based on this information, you should first contact a tax professional or your CPA to learn more about how to reduce your tax liability this year.

Review

Now that you have reflected on the past year, it is a good idea to review your estate planning documents. First, confirm that your estate planning documents are located in a safe place and that they can be accessed by your fiduciaries and family. Next, confirm that you have the following commonly used estate planning documents and ask yourself the related questions:

Maryland Advance Directive (Health Care Agent & Living Will)

• Do you need to review your appointed agents?
• Are you planning to undergo a medical procedure? If so, is it one that has high risks associated with it, uses general anesthesia, or where you will be unconscious and have no awareness or sensations?
• Do you need to confirm that you clearly expressed your wishes regarding end-of-life treatment options? Have you changed your mind regarding the provision of artificial nutrition, hydration and life-prolonging medical procedures?

Power of Attorney

• Do you need to review your appointed agents?
• Do you want to limit their powers?
• Have your agents moved out of state? Will it be feasible for them to reach you quickly if needed?

Revocable Living Trust

• Do you need to review your Trustee/Co-Trustee appointments and successors? If so, consider whether they are capable of fulfilling their duties. Also consider the costs and benefits of appointing a corporate trustee.
• Did you, or do you need to fund your trust during your lifetime? If so, think about what assets transfer to your trust and when.

Last Will and Testament

• Do you need to review your personal representative appointment? Successors?
• Are they capable of fulfilling their duties? Have they moved out of state? Out of the country?  Remember that a personal representative will need to be local in order to handle many tasks that cannot be handled remotely. Generally speaking, the Personal Representative is responsible for opening the estate, collecting the assets of the estate, protecting the estate property, preparing an inventory of the property, paying various estate expenses, valid claims (including debts and taxes) against the estate, and eventually distributing the estate property to the appropriate beneficiaries.
• Plans for minor children: Does your plan include trust provisions (whether a testamentary trust or a living trust) to control the time and amount of access to funds? Have you named one or more guardians?  Should the person who is the guardian be the same person in charge of the trust funds to care for the child?  If you’ve named a couple as guardians of your child, consider if their suitability in the event of death of one party or divorce.
• Tangible personal property: Do you have an extensive music collection or art collection? Is there sorority or fraternity memorabilia that you need to bequeath to someone? Have you given some thought to who you’d like to inherit the collections? Has that changed? Have you been pushing it off because you think it is too complicated to get all of the items organized? This is something that an experienced estate planning professional can help you accomplish.
• Digital assets: A number of things created online are digital assets, including domain names, social media accounts, cryptocurrency, blogs, e-mail accounts, electronic financial information (although, the underlying financial asset is not included in this definition), loyalty program benefits (such as airline miles or hotel points), electronic files stored in the cloud (including your photos and videos), online game personalities and electronic medical records. Have you accounted for the digital assets you own?  Does your Power of Attorney give an agent authority to manage those assets?

Additionally, do not forget about your bank accounts and non-probate assets like retirement accounts and life ins that pass directly to your beneficiaries without court intervention. Confirm the status of each beneficiary with each investment institution and consider the way in which you named beneficiaries and the amount you want to go to them. Confirm that this in line with the rest of your estate plan and that there are no inconsistencies.

Moving Forward

As we come to the end of 2021, let’s pause and give thanks that we’ve made it!  Unfortunately, there are many who have not, and that fact alone should underscore that life is not promised. We can, however, take responsibility to have a good quality of life while we’re here. We can take steps to minimize the overwhelm experienced by loved ones when we become incapacitated or die. We can take steps today, right now, to ensure that we have done all that we can to leave a legacy to be proud of.