Estate plan

Is Your Estate Plan Going to Actually Protect Your Family?

Kay Dee Cole

December 15, 2023

“Do I have an estate plan that will protect my family?”

We get this question all the time. 

I love this question because it so clearly comes from someone thinking ahead for the well-being of their loved ones – because an estate plan isn’t just something you do for yourself; it’s a gift you give to the people most important to you. 

An estate plan can ensure your assets are passed down to others how you would like them to, provide financial security for your surviving family members, and express your wishes regarding potential healthcare and financial matters. But just as your life and relationships grow and shift over time, so should your estate plan. 

Related: The Beginner’s Guide to Estate Planning

So, if you’re wondering whether your estate plan is enough to protect your family, this blog is for you: Let’s explore the basics of estate plans, how to know if yours needs a refresh, and the steps you can take to update your plan. 

What Should an Estate Plan Include?

You hear the phrase “estate plan” a lot, but a complete estate plan is a collection of multiple elements rather than a single document. An estate plan should include:

  1. Your will and/or a trust. How do you want your assets handled when you’re gone? Everyone needs a will, but in many situations, a trust might be a good idea as well.
  2. Durable power of attorney (POA). Who should make legal and financial decisions on your behalf when you are unable to do so? A power of attorney allows you to choose that person.
  3. Beneficiary designations. Who receives each account (IRA, 401(k), insurance, etc.) on your passing? These must be updated wherever the account is held. Here at Clarity, we review these with clients regularly for accounts we manage.
  4. Letter of intent. What instructions do you want to leave for your funeral or other assets? These are sometimes called a “love letter to family” as well.
  5. Healthcare power of attorney. Who should make medical decisions on your behalf when you are unable to do so?
  6. Guardianship designations. Who should take care of your children or anyone else in your care? 

If anything is unclear in any of these areas, then the court may step in and act on your behalf, which is not ideal because they have no idea what you would want to do. 

Also, remember that while these six are the core elements each estate plan should include, you may have other assets that need further instructions, clarifications, or legal considerations. Working with a financial professional or estate planning attorney can help ensure that no stone is left unturned. 

Related: Estate Planning 101: Making Sense of Digital Assets

Is Your Estate Plan Enough to Protect Your Family?

If everything on the above list is covered, then you’re well on your way to an estate plan that can protect your loved ones. 

The word “protect” also makes me think of insurance – an essential piece of this puzzle. Do you have adequate life insurance? Are your home and business adequately insured in case something happens to you? Are beneficiaries designated on all accounts? Now’s a great time to check in on those accounts. 

If you’re asking, “Is my estate plan enough,” you likely already have some plan in place, but you’re wondering if it could be better. If that’s the case, our most significant advice is to Keep it updated. 

We recommend checking in at least once every five years or whenever a significant life event occurs, such as a birth, death, wedding or major change in tax status. 

How to Update Your Estate Plan

Some pieces of your estate plan can be updated with just a few minutes of your time and a wifi connection – like the beneficiaries listed on your online accounts. Others may require legal assistance or guidance, like a trust or will.

Related: What Updates Should You Make to Your Estate Plan After Your Spouse Dies?

If you need to update your plan, contacting your previous attorney is a great first step. If you need help to prepare, your financial planner can:

  • Offer insights and guidance. We can help answer general questions about estate planning – like what needs to be kept and for how long, and tips on organizing – but an attorney must draft and complete the documents. If we hear about tax changes for higher-income clients, an attorney can answer related questions.  
  • Collaborate or connect you with other professionals. If you’re working with an advisor and require the assistance of an estate planning attorney or other professional, they can often point you in the right direction.  

That said, if you have any urgent updates and it will be a while before you can go the official route, it may still be worth it to write, date and sign an interim document and place it somewhere safe. Sometimes, a simple handwritten will may be considered during estate distributions (although that varies by state and case and often requires a notary and/or witnesses). We don’t recommend waiting, though. It is best to have legal documents – but the worst is to have nothing.

An estate plan is a great gift to give yourself and your loved ones, but it’s not a one-and-done task. To feel confident that your family is protected, be sure to review and refresh your estate planning often – and double-check that it includes all the important stuff like your will, POA, beneficiaries, letter of intent, healthcare wishes and guardianship designations. 

Protect Your Family with an Updated Estate Plan

Here at Clarity, we know that estate plans are part of a healthy financial life, and we often build estate plan reviews into our regular client relationships. 

Interested in creating or refreshing your estate plan? Looking for personalized financial planning guidance? Click here to schedule a complimentary consultation with a member of our team to get started – we’d love to meet you!

Latest Posts

Just Found Out You’re the Beneficiary of a Trust? Here’s What You Need to Know

Just Found Out You’re the Beneficiary of a Trust? Here’s What You Need to Know

If you have been named as a beneficiary of a trust, you probably have many questions about what comes next. Trusts can take many forms and may be governed by unique provisions established by the creator of the trust or “grantor.” As a trust beneficiary, you have certain rights. But to ensure that your financial and other interests are fully protected, you need some basic information about different trust structures and their management.

Trust Basics

At their most basic, trusts can be grouped into two broad categories – living trusts and testamentary trusts. A living trust is created by an individual during his or her lifetime. The grantor transfers property to a trust that is managed for the trust beneficiaries by a trustee. The grantor may act as trustee, or he or she may appoint another family member or family advisor, such as an attorney or accountant to be the trustee. A testamentary trust is established by will upon the death of the person whose assets it represents. Testamentary trusts can be used for many purposes; chief among them to provide for current and future beneficiaries.

In either case, it is the trustee who is charged with administering the trust in strict accordance with its terms. If this so-called fiduciary duty of the trustee is breached in some way, beneficiaries have the right to protect their interests by taking legal action against the trustee.

Role of the Trustee

Following is a brief overview of the trustee’s role and responsibilities.

• Asset collection and protection – Two of the trustee’s key responsibilities are collecting assets earmarked for the trust and ensuring the protection of those assets. For instance, if real estate is included as a trust asset, the trustee is responsible for the maintenance and upkeep of the property and maintaining appropriate insurance on the property. In the case of financial assets, such as cash or securities, the trustee must maintain one or more separate accounts on behalf of trust beneficiaries.

• Investment oversight – The trustee ensures there is a plan in place to address the needs and interests of current and future beneficiaries. Typically, trust investments are expected to generate income for beneficiaries while also retaining and reinvesting principal. In some cases, the trustee may have the authority to make distributions of principal to beneficiaries.

• Taxes – The trustee reports all income generated by trust assets and pays tax on any undistributed income as well as capital gains realized by the trust. In addition, the trustee informs beneficiaries of the amounts that they must report on their personal income tax returns as a result of trust distributions.

• Recordkeeping – The trustee is responsible for documenting every transaction that takes place in the trust accounts. Prior to final settlement, the trustee must demonstrate to the beneficiaries that all assets and income have been properly administered and distributed.

Beneficiary Right to Action

In addition to regular accounting of trust assets, beneficiaries have a right to request a special accounting from the trustee if there is reason to suspect a problem with the trustee’s performance of his or her fiduciary role. If it is found that the trustee is in violation of his or her responsibilities or fails to provide proper documentation of trust activity, then the beneficiary has the right to take legal action, including removing the trustee and requesting a replacement. Such action is normally handled by filing a petition with the local probate court.

Revocable vs. Irrevocable Trusts

Living trusts may be revocable or irrevocable. As its name implies, property held in a revocable trust may be “revoked” at any time; the terms of the trust may be changed and assets returned to the grantor. He or she can establish detailed instructions as to the handling of trust assets during his or her life and ensure continuity of management upon incapacity or death. Revocable trusts need not be filed in probate court after death, thus maintaining family privacy. However, the grantor will be subject to income and estate tax as if the property were owned outright.

In contrast, assets placed in an irrevocable trust are permanently removed from the grantor’s estate, and any income and/or capital gains taxes owed on assets in the trust are paid by the trust. Upon the grantor’s death, the assets in the trust are not considered part of his or her estate and are therefore not subject to estate taxes.

Irrevocable Trusts Offer Lifetime Giving to Beneficiaries

While requiring some loss of grantor control, a properly drafted irrevocable living trust allows individuals of substantial wealth to begin transferring assets to beneficiaries during their lifetime without incurring gift or estate tax. (Please note that a three-year survival period may be required in certan situations).

For example, the normal annual limit on tax-free gifts is $14,000 per beneficiary in 2015, an amount that may be indexed for inflation in future years. Under some circumstances, a taxpayer may include amounts above that in his or her unified estate and gift tax exclusion amount ($5.43 milliion in 2015 for an individual, twice that for a married couple, and subject to indexing for inflation in subsequent years). In addition, upon the grantor’s death, appreciation on the remaining trust assets is not subject to estate tax (assuming any three-year survival requirements are met).

Being named as a beneficiary of a trust is indeed a welcome event, but not without its complications and, if handled improperly, unfortunate consequences. For help understanding your rights and protecting your inheritance, it may be wise to engage the services of an experienced trust attorney.

Financial Planning Association
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