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New Year’s Estate Planning Resolutions


So, you thought New Year’s resolutions were for losing weight and giving up eating corn dogs. Naw, the most exciting New Year’s resolutions are estate planning commitments. So, when you head off to Times Square to watch the ball drop, take along pen and paper so you can jot down all your estate planning commitments. The following is a list of estate planning New Year’s resolutions to get you and your loved ones protected. Besides the gyms are going to be overrun by New Year resolution couch potatoes for at least a month, so you may as well do your estate planning now.

Get Smart

Even Maxwell Smart of secret agent fame knew it was all about CONTROL. You want to have control over your life. You want to have control over what happens as you get on in years, face a health issue, etc. Reframe your thoughts about estate planning. It is not only morbid thoughts of dying. Estate planning should be as much planning for life: retirement, illness, disability, young kids, college, etc.

Word is that 43% of Gen Z’ers want to retire before age 65. That means they need estate planning. Estate planning means retirement, insurance, and other planning. If you want to retire years before your folks and grandfolks did you better have a good disability insurance policy and adequate life insurance coverage if you or your partner become disabled, or one of you dies. Stuff that is usually thought of as depressing planning for death and older people is really part of the backstop you need for your future early retirement. So, Get Smart and get on the estate planning bandwagon now.

Where There is a Will there is a Way

Some studies suggest 67% of Americans don’t have a will or estate plan. That’s a bad move. If you have any money you’ll want it to go to who you want if you die, not who state law dictates. And by the way most state intestacy laws (the law that says who gets your stuff if you don’t write a will) were written when the Cleaver family was the typical American family. If you don’t even know the Cleavers then that kinda makes the point. Today, more than 2/3rds of kids live in a non-traditional family. Bottom line is mom, dad and a couple of kids in a first marriage is not the norm or even the majority. If you rely on ancient state default rules ‘cause you don’t want to deal with the unpleasantness of writing a will, your loved ones (however you define them) will lose out.

Care of the Munchkins

You need a will because it is the way you appoint a person, called a guardian, to take care of the little ones if something happens to you. That is really important. If you do nothing a court might have to step in and decide who gets to take charge of the kiddies. Is a judge going to know that your brother is Borg (you know the Star Trek villains that were part human, part machine, and “assimilated” their foe). Do you really want your little cutie assimilated into your brother’s lifeform? Name a guardian. Also, state law won’t create trusts to protect money for your loved ones. You need a will (or revocable trust to do that).

Be Sure You have the Documents Most People Need

While estate planning must emphasize “planning” for you to achieve your goals you also do need the common documents most people have. Here’s a list. If you are missing any of these, or have named people that you haven’t talked to in years, time to upgrade.

Power of attorney – document to appoint an agent to handle legal, tax and financial matters.

Living will – statement of health care wishes. This gives guidance to the agent you appoint under your health proxy. It is also a good place to document religious or other personal wishes.

Health Proxy – designate an agent to make health care decisions if you can’t.

HIPAA Release – designate an agent to interact with medical professionals and have access to your medical records (but not to make medical decisions which his in the health proxy).

Emergency Child Medical Form – you’re off on a world cruise and a munchkin falls ill. You need to designate a person to make medical decisions for the minor kids and give them critical information to do so.

Will – distributes assets and appoints guardians for minors and names a personal administrator to manage your estate.

Revocable Trust – bridges gaps in a will and power of attorney by designating successor trustees to manage trust assets and help you especially if you are aging or disabled. On death it may minimize probate and publicity.

Beneficiary Designations – indicates where retirement, insurance and other assets will pass on death.

Deeds, and Other Title Documents – a deed is a formal legal document confirming ownership of real estate. If you list your house as owned by you and another person as joint tenants that means you each own an interest in the property and on death it passes to the survivor. Bank accounts and other assets can be listed as “Pay on Death to” or “Transfer on Death to” and in similar ways that those ownership documents also govern who can access the assets and who inherits.

Do an inventory of all your documents, review them to see if they are current. If they are more than 3-5 years old or if you have had major life changes since they were done (divorced, married, new kids, significant health issues, etc.) talk to a pro and be sure they still meet your needs. If you don’t have one of the documents above, or suspect you might need other documents, you’re probably best-off reviewing that with a pro as well. If you are using low cost or online resources you probably do want to spring for a pro to confirm what special documents you need because when you don’t fit into the typical molds many of the lower cost options and online solutions won’t work. For example, if you are on in years and are trying to protect assets from Medicaid, or you have a family business or professional practice and need to address succession planning, or have a net worth that is substantial (yes, vague intentionally because it “depends”), you really need to be careful using low-cost, online solutions or anything “standard.”

Review your Insurance

There is a myriad of types of insurance. You probably shouldn’t buy every type of coverage imaginable as you may not need everything and few folks can afford everything. But it is pretty common for people to have big and dangerous gaps in their insurance plan. You need to be certain that you have reasonable coverage for risks that might affect you or your loved ones. You can often modify deductibles and other details to tailor coverage to suit both your needs and budgets. Commonly overlooked coverage includes personal excess liability or umbrella coverage. That is a policy that covers you from claims on suits beyond the limits on your auto and homeowners policy. That can be vital to protecting your wealth as many typical homeowner and auto policies have more modest limits on liability coverage, e.g., $500,000. If your estate is a large multiple of that you pretty likely may want more coverage. Be sure the coverage works for your situation. If you have a house you are renting it probably has to be insured as a rental not as a residence if you are not using it as such. If you lack sufficient property, casualty and liability coverage a calamity could wipe you out financially. I might no longer matter how great your will is as you may thereafter not have enough assets to make any significant bequests. It may not matter what retirement plans you have as a loss of unprotected assets (e.g., pension funds might be protected from claims) could derail the best laid retirement plans.

Many people skimp on disability and long-term care insurance. If you become incapacitated that coverage may be critical to assure you adequate resources to survive.

(And by the way I don’t sell insurance of any type, I’ve just seen the carnage people have experienced when they don’t have adequate coverage).

Don’t assume insurance planning is only for rich folk. Those of more modest means may need the coverage even more to protect against financial risks and gaps in their plan and to protect loved ones.

Don’t assume insurance planning is only for people not as well off as you. The wealthiest people can still use insurance planning in creative ways to minimize estate tax and to backstop other planning techniques.

Update a Detailed Balance Sheet

There are lots of reasons your estate and related planning will depend on your creating and maintaining a current and detailed balance sheet. Consider the following:

Disability – if you become ill or incapacitated the person you appoint under a power of attorney or revocable trust as your agent or successor trustee will have to marshal assets, pay bills and help you out. If they don’t have an organized list of all assets, and the details on those assets (bank or financial firm, account number, password, contact person and phone number, etc.), how can they help you? Remember, estate planning should never be only about planning for death, but rather also about planning for life.

Insurance – you cannot review your risks and assets to be sure you have adequate coverage without a balance sheet with some explanations as to what various assets are and how they are owned. Example: a rental house should probably be held in a limited liability company or “LLC” to prevent a lawsuit stemming from a tenant from reaching your personal assets. But your insurance consultant will have no know that the house is in an LLC not owned personally so that the insurance policy is properly written.

Asset Allocation – your investment adviser needs to know all the assets that you have so that they can properly evaluate and update (rebalance) your investment allocation. Too often folks only tell their investment adviser about some but not all assets. If you want the job done well, you have to disclose all.

Retirement planning – Having full information is critical. Why does your investment adviser need to know about the vacation home you just bought? It will require cash flow to maintain it (property taxes, insurance, repairs, etc.) so your budget should be updated for these new costs. Also, when doing retirement planning at some age you might no longer use the vacation home and selling it may be a crucial component of meeting your retirement planning goals.

Asset protection – to protect assets from suits and claims you need to evaluate each asset on your balance sheet and consider how that particular asset might be protected. You also need to identify and then analyze every significant risk that each item on your balance sheet might generate. You also have to identify and consider any activities you are involved in that don’t appear on the balance sheet and determine how to insulate your assets from those claims. Planning to protect assets is a key step for everyone (although admittedly more important for some, but no one should ignore liability risks). Having a detailed balance sheet is a great starting point for this analysis.

Properly Administer all Trusts and Entities

If you have any irrevocable trusts (insurance trust, spousal lifetime access trust, GST trusts, asset protection trusts, etc.) or business/investment entities (e.g., LLCs, FLPs, S corporations, etc.) you need to review any governing legal documents, the requirements in those documents, other formalities of proper operation of trusts and entities, etc. If you don’t adhere to the formalities and respect the independent reality of each irrevocable trust and entity the courts, creditors and IRS may not respect them either. If you have any irrevocable trusts or entities that should really be handled with the help of pros (CPA, attorney, etc.) not on a DIY basis. If you have not organized all relevant documents for all trusts and entities, and have not reviewed them annually with your advisors, you really should make a resolution now to do so. If you want to make this all less costly and less complicated, review this stuff every year with your advisers. People who think they are saving hassle and money by doing this less frequently tend to almost always compound mistakes adding immeasurably to the cost, hassle and even risks of these vehicles.

Trust Income Tax Planning

Irrevocable complex (non-grantor) trusts can pay tax at the maximum tax rate at a mere $14,000 or so of income. Contrast that to a married couple who might not hit the top income tax bracket until $600,000 or so of income. Bottom line, trusts are a powerful tool that are used in almost all asset protection and estate tax planning programs. But you should monitor the income tax profile of these trusts. If you are creating new trusts there are some creative ways to expand the potential beneficiaries of the trusts to permit more flexible income tax planning. For existing trusts, you should review the permissible beneficiaries, their likely tax profiles and determine how and when to make trust distributions to minimize the overall income tax burdens.

What does trust income tax planning have to do with estate planning? Everything. Trusts are the foundation of many estate plans. If the income tax planning for your trusts is not planned well and evaluated at least annually the corrosive effects of that possibly avoidable income tax burden can take a huge toll on the wealth you are able to protect and transmit.

Catch All

We’re all unique. There is no such thing as a standard estate plan. Consider what special issues, concerns, or points your plan might benefit from addressing. Jot those down on your list to address in the coming year.

Make it Happen

Write it down. Commit to spending at least a few hours say every other weekend (or whatever works for you) to start addressing the points in your plan. Set some milestones for getting your list accomplished, like “By February 15 we’ll have hired an attorney to draft new documents,” “By March 10 we’ll have a new detailed balance sheet,” etc. Reality is that estate planning, thought vitally important, cannot compete with almost anything else on you to do list. If you don’t make a plan and try to move forward in digestible increments, you’ll be in the same spot at the end of 2023 as you are now. That is not progress. Even baby steps over time add up to real progress. Commit and move forward.



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