Planning for one’s future is not a “one and done” scenario. Just because your financial planning was what you wanted or needed then, it may not be in the right place now. An estate plan is prepared based upon assets, distribution plans, and tax law as these existed at the time the plan was developed. It is normal that after the estate plan has been prepared, children grow up, investments may have prospered or diminished in value, and other circumstances may have changed that will require you to modify the original goals or strategy. Furthermore, laws regarding income taxation as well as gift and estate taxes may have changed. Failure to consider these changes could result in problems in your estate plan.

An estate plan may involve a Will, non-probate transfers, a healthcare declaration, a durable power of attorney, and could involve a trust, revocable or irrevocable. Estate planning may incorporate business succession planning and may include family-limited partnerships or other entities intended to reduce the value of the estate. One way to successfully implement that could be by taking the assistance of firms that can help in managing limited partnerships and craft a successful investment strategy for the future. That said, the estate value would have been intentionally reduced due to a then lower estate tax exemption. Any estate plan requires review from time to time and possible adjustment to address changes of circumstances. While there are various types of changes that may affect your estate plan or trust, some examples include:

  1. Assets. Has the value of assets substantially changed, much more than expected? Has the type of asset changed significantly? Will the income anticipated from the trust assets provide adequate support for beneficiaries if such support is intended?
  2. Distribution Plan. Is the age for distribution to children now considered earlier or later than desired? Will the trust assets provide sufficient income for the support of the intended beneficiaries? Have the circumstances of the intended beneficiaries changed such that the plan needs to be revised to provide changes in support provided for one or more beneficiaries? Should consideration be given to protect assets intended for a beneficiary?
  3. Personal Representative or Trustees. People age. Relationships change. Needs change. Is the person named to be the personal representative or the trustee still the person you desire to serve in that capacity?
  4. Law. Many estate plans have included a trust(s) prepared to take advantage of the unified gift and estate tax exemption at the time. Often, a credit shelter trust was used, funding the credit shelter trust to the maximum extent of the unified gift and estate tax exemption, with the remaining trust assets distributed to a surviving spouse. The unified gift and estate tax exemption, however, has substantially increased, and the unused portion of an exemption may now be used by a surviving spouse. In many instances, as a result of the language used to fully utilize the unified gift and estate tax exemption, under the current tax law the entirety of the trust assets will be distributed to the credit shelter trust, with little or nothing distributed to the marital trust for the surviving spouse. For example, if husband owned assets with a value of $1M in 1999 and executed a trust as suggested above, and died immediately after, the credit shelter trust would have received $650k (the amount the full estate tax exemption at that time) and the marital trust would have received $350k. If he lived until January 2015, the credit shelter trust would get the entirety of the trust assets up to to $5.34M and the marital trust would get only the amount of the trust assets exceeding $5.34M If you have such a trust, you must consider whether such a result would adversely affect your desired plan.

Additionally, as a result of substantial changes in the unified gift and estate tax exemption, increasing it to a current amount of $5.34M, tax strategy may need to be reconsidered. If your estate plan included strategies such as the use of a family limited partnership or other entities to take advantage of probable discounts, the plan should be re-examined in light of tax law changes. Income tax consequences for your estate plan should be evaluated to determine if changes should be made to reduce the overall tax consequences to the estate plan.

Have you considered the effect of portability? In simple terms, portability of the unified gift and estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use of all of the deceased spouse’s federal exemption from estate taxes, then the amount of the exemption that was not used for the deceased spouse’s estate may be transferred to the surviving spouse’s exemption so that he or she can use the deceased spouse’s unused exemption plus his or her own exemption when the surviving spouse later dies. Portability may in some circumstances reduce the need for the type of trust referred to above, while in other circumstances not be as significant.

Estate plans must be managed and reviewed as laws and family circumstances change. Trusts are live, dynamic documents and must be managed as part of the estate plan. In most instances problems created by significant changes can be resolved by modifications to the estate plan (trust) if they are recognized and dealt with during your lifetime. You should see your attorney to evaluate your circumstances and see whether changes in your estate plan should be made, and the options available. Our attorneys are available to consult and assist you with all of your estate planning needs.