FIND OUT HOW YOUR PLANNED GIVING CAN HELP THE AMERICAN LEGION
You have made a will and possibly a revocable living trust. Your durable power of attorney for health care and a living will are in place. All your records are in place safely and neatly organized.
So you’ve completed your estate planning. Where are you? Will there be changes in your situation or in your family that should lead to a revision of your plan? Could certain events require you to revise or update the plan?
Yes, there are a number of reasons to consider revising or updating your plan. These include any of the following reasons:
New children, grandchildren or other heirs
Your estate plan almost certainly provides for children and other living heirs when you die. If you have a child-specific transfer, a new child may receive a smaller inheritance than expected.
For example, John Smith had an estate of $1 million and left a residence of $400,000 to child A. He then divided the balance of the estate, with 1/6 of the balance going to child A and 5/6 to Child B. If a third child is born, depending on state law, the child may receive nothing or may receive some of the residue. In either case, the uncertainty could lead to inheritance disputes or family disputes.
If you have a large estate and the specific legacies are important, the arrival of a new heir is a good time to review your project. One option is to transfer the assets to the “then living” heirs upon your death.
If the estate is $1 million, in some states a child C born later would receive 1/3 of the estate. This could radically change the benefit for child B and leave him with a reduced inheritance. Also, Child C could be a minor or very young and not be able to manage his property. For several reasons, the arrival of a new heir makes the review of your plan very important.
Switch to another state
If you are married and move to another state, there may be a change in the laws that affect ownership. Some states are called “common law” property states, and some are “community property”. If you are moving from state to state and changing direction, it may be important to clarify ownership of your property as separate ownership or joint ownership.
For people with medium to large estates, there could be significant estate or inheritance tax. Several states have estate taxes that will apply at lower levels than the federal exemption per person. Depending on who among your relatives receives your property, a new state may have a substantial tax.
Finally, many states have specific rules about durable powers of attorney for health care, living wills, or advance directives. If you acquire permanent legal residency in the state, your doctors will expect your medical planning documents to reflect their state law.
Sale or purchase of a major asset
You may have significant real estate or a business that needs to be passed on to one of your heirs. If this property sells or increases significantly in value, your whole plan could change. For example, if the value of a property increases significantly and a large inheritance tax is paid on the remainder of your estate, the beneficiary of that specific property could receive a much larger inheritance than expected. Children or other heirs who receive the residue could see their inheritance greatly reduced by the estate tax paid on the asset transferred to the first child.
Alternatively, if the first asset is sold, a child may receive a smaller inheritance than expected. Therefore, a major sale or purchase is a good time for an estate planning review.
reach the age of 72
The four types of real estate are generally cash and cash equivalents, stocks, real estate, and qualified plans. Over the years, your qualified retirement plan can become a large part of your estate. Your IRA, 401(k), or other qualified plan will require distributions to begin April 1 of the year after you turn 72.
If you die before the entire plan is paid to you during your retirement years, the balance is transferred to your designated beneficiary. Since pension plans have grown significantly over the past decade, it is very important to review your beneficiary designations. Many people die and the value of the plan is transferred to beneficiaries who were selected 10, 15 and even 25 years earlier. There could be many reasons why you would want to update this beneficiary designation, and 72 is a logical age to do so.
Your selected beneficiary has passed away
In many families there are unmarried brothers or sisters. It is quite common for these people to receive an inheritance and remember surviving siblings in their plans. However, even if there are two or three unmarried siblings, one will inevitably be the survivor and hold most of the assets. If you remember a sibling in your plan, chances are they will die before you. In this case, it is useful to revise the plan and select a new beneficiary for this part of your estate.
Divorce or remarriage
The estate plans of single people are quite different from those of married couples. A single person who transfers assets to an ex-spouse will not be eligible for the unlimited spousal deduction. While property settlements are usually handled during the dissolution of marriage proceedings, there are many instances where individuals forget to change beneficiary designations on pension plans and insurance policies. If a person later remarries and is survived by their new spouse, there is a high likelihood of litigation between the ex-spouse and the new spouse if the person forgot to update their beneficiary designations. Therefore, that person’s plan and beneficiary designations should always be reviewed in the event of divorce or remarriage.
Substantial change in value
If the value of a person’s estate increases or decreases significantly, it can have a major impact on the beneficiaries. For example, Mary has children Anne, Bob and Charlie. She leaves a house worth $300,000 to Anne, a farm worth $400,000 to Bob, and the cash to Charlie, who has the greatest financial need. While Mary is in a nursing home and no longer able to change the will, oil is discovered on the farm. When he dies, Bob receives the farm, worth not $400,000 but $8 million.
Add major property to an inter vivos trust
If you have significant assets, you can hold your property in an inter vivos trust. If you invest in real estate or acquire a large new property and transfer it to the living trust, it will be useful to review the plan. In certain circumstances, the beneficiaries of the living trust may be different from those of your qualifying plans and your life insurance. Adding a high-value asset to the living trust could increase the benefits for those receiving shares of the trust over the rest of your heirs.
Selected executor or trustee not available
With a revocable living will or trust, you can also choose a successor executor or trustee. While this usually fixes the situation where the primary executor or trustee predeceases you, it’s still worth revisiting your plan if one of those people dies. You can easily select a new principal or fiduciary executor with a suitable successor.
passage of time
Estate plans are affected by changes in the value of your assets, changes in your family and potentially changes in federal or state law. Therefore, it is helpful for you to sit down with your attorney every three to five years and review your plan. Considering all the potential areas that can change, chances are you’ll want to change some part of the plan.
The American Legion’s Planned Giving Program is a way to establish your legacy of support for the organization while meeting your current financial needs. To learn more about the process and the variety of charitable programs you can benefit from, go to legion.org/plannedgiving. By clicking on “Learn more”, an “E-newsletter” button will be displayed, where you can subscribe to receive regular information on planned giving.