Do You Have an Effective Estate Plan?

04/10/2012 10:00 am EST


It's all well and good to master the investing universe...but even if you accomplish that, you need to make sure your portfolio is built into a broader plan for you and yours over the long haul, writes Bob Carlson of Retirement Watch.

Celebrity estate plans are in the news again. Whitney Houston passed away recently. Brooke Astor died a little before that, but her estate plan made the news again. You can learn from these plans.

Houston’s plan was not as bad as feared by many. She left all of her estate to her only child and named her mother as executor. She also wisely said the assets were to be held in a trust for her daughter. That was wise because her daughter is only 18, and is reported to have substance abuse problems.

But Houston’s plan wasn’t updated for a number of years. The will apparently still refers to her ex-husband as her husband, and names him as guardian if her daughter still is a minor.

Astor’s problems were well-publicized. Her only son was convicted of taking control of her assets while she was alive but suffering from dementia (she died at age 105) and converting those assets to his personal use.

He also convinced her to sign codicils to her initial will. The codicils cut some charities out of her will and gave the money to her son. The son now is out of prison, and recently entered into a settlement with the charities and other beneficiaries of her initial will on how her estate will be split.

Astor’s problems easily could have been avoided, and Houston should have done more to avoid potential problems.

Estate plans are like the rest of your financial matters. They need to be reviewed and revised on a regular schedule. Change happens all the time, and changes outside your life and your family need to be monitored.

Factors far removed from your family can trigger a need for your plan to be revised. You might not even know about all the important changes that affect your estate plan. Perhaps a law or circumstance has changed. Your estate planner would know, but you’d have to be in touch with the planner to ensure the appropriate changes are made.

The estate plan is more than a document, such as a will or trust. I’ve stressed in the past that the estate plan is how your legacy is determined and carried forward.

Before the documents are drafted, you consider big picture issues such as who should benefit from your estate and how they should benefit. Your estate planning advisors can help with this, but only if you are in touch with them regularly and they know your circumstances and intentions.

Consider these factors that may require a change in your plan:

Life Expectancy
Rising life expectancy and changing medical treatments should influence your estate plan. Key elements of a plan are the health care power of attorney and similar documents that determine who makes medical care decisions when you can’t.

Also, the way some diseases or conditions are treated is changing, and treatments are available that weren’t in the past. All this could make it desirable to change the details of your medical care documents, especially if you have a family or personal medical history involving a condition for which treatment is changing.

Carefully consider who will make decisions, and also review any specific directions you’ve given.

Investment Values
Changes in asset values or interest rates can cause big, unintended changes in your estate plan.

When your will designates certain assets for beneficiaries, some people could receive much larger bequests than you intended, and others much smaller ones, because of market value changes. Or you might intend to give charity 5% of your estate, but when asset values change, you realize the charity might be receiving more than 5%, or that the estate has declined in value and your heirs need all of it.

Some of these unintended effects could be mitigated by having flexibility in your plan, but even that has its limits. After significant changes in investment markets, many people simply avoid looking at their account statements. Your estate planner should take a look at them, however, and advise whether your plan needs an adjustment.


Your estate needs an executor, and your trust needs a trustee—at least one of each.

When you can’t make financial and other decisions for yourself, there should be a power of attorney that appoints an agent to handle things. This is where Brooke Astor’s plan fell down. She took the frequent step of appointing her only son as the agent and as executor of her estate. It turns out he had bad judgment and couldn’t be trusted. Review your choices carefully.

Fiduciaries also should be reviewed when they undergo change. Corporate fiduciaries, such as banks, can merge, move or change their business plans. The individual you were working with could retire or move to another firm. Or your fiduciary could be aging or in failing health. Keep track of your fiduciaries and be prepared to make changes.

Many estate plans, even for modest estates, now have one or more trusts. Or you may have considered and rejected including a trust in your plan.

What many people don’t realize is that trust law changes, and it definitely changed in recent years. Also, estate planners develop new trust strategies and provisions. In recent years, American trust law has adopted perpetual trusts, trust protectors, directed trusts, the total return trust, and other strategies.

Some states now allow even some provisions of irrevocable trusts to be modified. It’s another reason to meet with your estate planner simply to see if your plan can be improved.

Since Whitney Houston’s plan depends entirely on a trust, she probably could have benefited from such a review. She also might have been better off owning the bulk of her estate through a living trust, instead of in her name. The living trust would have kept most of the assets out of probate and the public eye.

Both people and society change values over time. Things that weren’t important to you a few years ago may be today, or vice versa. Or things society prohibited or frowned upon in estate plans could be acceptable today.

Tax Law
You know this changes every year or so. Avoiding action because of the frequent changes isn’t a good strategy. Your will should reflect the changes.

More changes are on the way and could affect your plan in ways you don’t realize. It’s worth a review every year or so to ensure there aren’t hidden pitfalls in your plan.

Other Laws
Since estate planning is about more than taxes, laws other than the tax code can trigger changes in your plan.

Some people still haven’t modified their plans for the Health Insurance Portability and Accountability Act (HIPAA), which provides your loved ones won’t have access to your medical information or be involved in treatment decisions unless you specifically give them written permission. Many states also have amended various laws that affect estate planning.


Personal Matters
Of course, your estate plan needs to be revised when there’s been a major change in your family. Changes that need attention include marriages or divorces of you or immediate family members, the death of someone mentioned in the will, and the birth of a child or grandchild.

Some of the changes to make in these situations aren’t always obvious. For example, the birth of a child or grandchild usually means they should be added to your will or trust. But it also could mean you should make an annual gift up to the exempt amount for the child or grandchild to remove that wealth from your estate.

Moving to another state or buying property there means a new set of laws controls your estate. Changes in your health or financial position also could require a will change. Your estate planner also should know when the composition of your financial assets changes, even if the values don’t. For example, the sale of a business or real estate and reinvestment of the proceeds could be important.

Often it is best to meet with your planner before a change. Suppose you are planning to sell a major asset. It could be a business, real estate, or part of your portfolio. Your planner may be able to develop strategies to reduce income taxes or estate taxes (or both), or to structure the deal to make it easier to meet your estate planning goals.

Of course, any changes in your intentions, goals, or values probably should lead to a change in your estate plan. Important changes to your estate plan can happen without your even realizing it.

Schedule a meeting with your planner when there’s been a major change in your life. In addition, you should meet with your estate planner every couple of years at least to see if any changes are required in the plan.

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