Estate owners dodged some bullets in 2021. Significant estate and gift tax increases were proposed early in the year, but they’ve been put on the back burner. They’re likely to be revised in 2022. Even if they aren’t, the 2017 changes are slated to expire after 2025. That would reduce the lifetime estate and gift tax exemption in half, among other tax increases.
While we wait to see what will happen to estate and gift taxes, there are actions should be taking now. Here’s what you need to do while Congress talks about your future.
Update and evaluate your financial position. You don’t need an estate planner to complete the first step in any good estate plan.
Compile details of all your assets. In addition to the names and account numbers or descriptions of assets, list the current values and how the assets are owned (such as separately, jointly, or in trust). Don’t forget assets that aren’t included in the probate estate, such as retirement accounts, annuities, life insurance, and those held in trusts.
Also, list the details of any liabilities.
Then, update your retirement plan or create at least a basic cash flow projection of expected income and expenses. You want to know how much wealth you need to retain to maintain financial security for the rest of your life. Any wealth above that potentially can be given away to reduce estate and gift taxes in advance of the effective dates of any changes in the law.
The more of this work you do now, the less expensive and the more complete a revised estate plan will be.
Review your current plan. You’ll do this again when meeting with the estate planner. But reviewing the plan now yourself and with your spouse will refresh your memory and perhaps stimulate ideas for changes or improvements.
Set your goals. Some of your goals might have changed since your latest plan was developed. Your family make-up might have changed. Or the potential changes in the law could affect your goals.
Review advance directives and powers of attorney. Often when these documents were developed, the choices of people to make decisions for you seemed automatic. Those agents might not be the best fit now. As part of this review you might realize that your financial and medical providers have changed and the new providers need copies of the updated documents.
Consider late-in-life and end-of-life choices. Advance directives and other documents usually contain your preferences for receiving medical care in certain situations. You also might have expressed preferences about receiving at-home care versus moving into assisted living or other facilities.
Your views on these issues might have changed, especially since technology, medical care, and other factors have changed. Review the choices you expressed in the current documents and decide if you want to make any changes. Be prepared to discuss these with your estate planner.
This also is a good time to consider or reconsider a plan to pay for any long-term care that might be needed in the future.
Discuss with the family. Advisors don’t agree on when family members should be brought into the planning process, but they agree family members shouldn’t be in the dark. Surprises in the estate plan often trigger estate disputes and family disharmony.
It’s a good idea to have early discussions with family members about the basics of a plan. Talking with your children about their financial situations and goals might lead you to make changes in your plan. Some parents are surprised to learn, for example, that their children really don’t want to inherit the vacation house and would sell it right away. There’s no point in planning how to have ownership of the vacation house shared among the children when they don’t want it.
Some parents decide that it’s better to make some lifetime gifts after learning of their children’s financial situations and goals.
Also, heirs should be given a good idea how much they’re likely to inherit or not inherit. That information is likely to influence their own planning.
Be ready to implement. Many estate plans fail because the plans weren’t fully implemented. Often beneficiary designation forms aren’t updated for retirement accounts, life insurance, and annuities. Many estate owners fail to transfer ownership of assets to living trusts or other vehicles.
Communicate and distribute. Some documents need to be distributed to key people. Other people need to know what their roles are in your estate plan and how they can obtain the documents when they are needed.
Once powers of attorney are executed, you should distribute them to financial service providers and be sure they’re acceptable to the providers. Medical providers should know about and probably have copies of your advance directive. Some states now provide for online registration of advance directives so medical providers can search for them when the need arises.
Don’t overreact to legislative proposals. Some people have been revising their estate plans already in response to the proposals in Congress, and some estate planners have been recommending early action. But most people shouldn’t take irrevocable steps before enactment, because the proposals might not become law or the details might change.