Estate planning is about obtaining peace of mind and control. After all, you will be gone when your estate plan is implemented. The question is: Will your estate plan be a trick or a treat for your loved ones? Here are a few common tricks to look out for:
Unfunded Trusts. One of the primary purposes of using a Living Trust is to avoid probate. However, if you have not properly funded your Living Trust, your beneficiaries may be in for a surprising trick when they are required to go through probate for an asset that was not properly funded into your Living Trust.
If you have a Living Trust, when working on funding your Living Trust, make sure to speak with your attorney to insure your Living Trust is properly funded. If your home or other assets are not titled (or beneficiary designated) to your Living Trust, a probate may be required when you pass away. There may be income tax or other consequences to your decision on how to fund your Living Trust.
Poorly Drafted Distributions. Poorly drafted distributions in an estate plan are a trick for your beneficiaries and a treat for litigation attorneys. When distribution provisions are unclear, your beneficiaries will very likely end up fighting over who should receive your estate. Poorly drafted distributions come in many different forms. Wording may be ambiguous: it may not account for all situations, or it could just be wrong, or it could be out of date with your current goals and desires.
A good estate plan will clearly state who gets what, how much, and whether it is received outright or in a Testamentary Trust. If you have a hard time understanding what your distributions mean, speak with an attorney to make sure the wording actually achieves your goals. Avoid tricking your beneficiaries with poorly drafted distributions and do not create a treat for litigation attorneys.
Planning For Your Spouse. Although Washington is a community property state, you are not required to leave your separate property or your half of the community property to your spouse when you pass away. Two of the most common spousal plans are the "I love you honey" plan and the "I love you honey, but..." plan.
With an "I love you honey" plan, you leave everything to your surviving spouse. Your spouse can then do anything with the money, including disinheriting your children or leaving everything to a new spouse.
With an "I love you honey, but..." plan, you leave your separate property and your half of the community property in trust for your surviving spouse with some restrictions. Your spouse cannot disinherit your beneficiaries and while your spouse can access some of your assets, he or she cannot spend all of your money without spending his or her own assets as well. This plan also has the added benefit of reducing estate taxes for larger estates (currently, estates taxes would apply for estates above $2,193,000 for Washington and $13,610,000 for Federal).
The trick here occurs when you choose the wrong plan. Some older plans may have chosen the "I love you honey, but..." plan to avoid estate taxes because back then, the estate tax exemption was low. But, the estate tax exemption is now much higher and thus, the added work involved with this plan can be an unnecessary (and surprising) trick to your surviving spouse.
An "I love you honey" plan can also be a trick. If your spouse remarries and drafts a new "I love you honey" plan and then passes away, your children have now been tricked out of their inheritance. Or, if you have your own separate children, your spouse may choose to disinherit them after you are gone. Again, you have left a trick for your children.
However, if you choose the right plan, you leave a treat for your beneficiaries. You can reduce estate taxes and protect your beneficiaries, or simplify the administration of your estate. To ensure your estate plan is a treat and not a trick, make sure to review your estate plan at least every four years or if a major life event occurs, and speak with your attorney so that your estate matches your current goals and life circumstances. Tricks can be avoided by planning ahead and working with your attorney to update and change your plan when needed.
If you want to review your estate plan to make sure it matches your current goals and desires, please call Rehberg Law Group at 206.246.8772 to schedule an appointment.
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