What Does it Mean to Manage an Estate Plan?
An Estate is a living, ever-changing entity. We should manage it like one.
For most people, the simplest version of Estate management is to go to a lawyer, create an Estate plan, and put it away safely somewhere for its eventual use. But this is not the same as managing your Estate. Just as things in people’s lives change, Estate plans need to be maintained and tuned-up over time. This article explains 1) why your Estate plan is more than those legal documents you paid to create, 2) what else makes up your Estate plan, and 3) what it means to manage and maintain it.
First, let’s expand the definition of your Estate plan beyond the legal documents you created with your lawyer. Your plan includes;
Legal documents, such as your Trust, plus any other documents and instructions you want associated with your Estate.
Moving your assets into the Trust that was created above. As important as the documents themselves.
A comprehensive inventory of the assets in your Estate, to make sure your family can find all of these assets when it is time to settle.
A list of Estate stakeholders, meaning all the people associated with your plan
Together these items make up your Estate plan - clearly it’s much more than the legal documents. And because your life and your circumstances are constantly changing, this is a living plan that should be reviewed and updated regularly. You should check in on the plan when you get married, or divorced, have children, or change jobs. When you open or close a new brokerage account. Or when you buy that new vacation home. Changes such as these can have a material impact on your Estate plan, and it's important to make sure that it’s always up-to-date.
In this article we will break down each of these components and describe why they need regular management.
1: Maintaining Your Estate Documents
There are many reasons you need to regularly review and update your key Estate documents. First, you want to make sure that your wishes are still being carried out. If you don't review your plan, you may not be aware of changes that need to be made. For example, you may have designated a specific person to be the Executor of your Estate, but that person may no longer be available or willing to serve.
Second, you want to make sure that your Estate documents are still valid. The laws governing Estate planning can change, so you need to ensure that your plan is still compliant with the latest laws.
Third, you want to make sure that your Estate plan is still effective in the context of any circumstances that may have changed. For example, if you have gotten married, you may need to update your will, or otherwise modify your plan to include your spouse. Tax laws change as do the value of Estate assets, so regular reviews will help identify if a tax issue exists, where it didn’t at the time of creating your plan.
Doing an annual review, or using a professional or service to help perform that review will help you ensure that you don’t have a problem that will derail the intent of your plan.
If you fail to manage your Estate plan, it could cost your family time, money, and stress. For example, if your will is not up-to-date, your family may have to go through probate court to distribute your assets. This can be a long and expensive process.
Additionally, if your Estate plan is not effective, your family may not get what you want them to have. For example, if you have a Trust that is no longer valid, your assets may be distributed according to the laws of your state, which may not be what you want.
2: Accurate Funding of Your Estate Plan
Funding an Estate plan means transferring ownership of your assets to the entities named in your Estate planning documents. Typically this is the name of the Trust you established. For example, if you have a living Trust, you will need to transfer ownership of your assets to the Trust. This can be done by retitling your assets to the name of the Trust. For example, if you own a car, you would need to change the title of the car to the name of the Trust. If you have a brokerage account, the name on the account would be changed to the name of the Trust.
Funding your Trust (or retitling assets) is critical because assets not held in the name of your Trust may not be distributed based on the instructions you have laid out in your Trust document. In some cases, those assets will be forced into probate which can be costly (in time and money), public and visible outside of your family, and may result in a decision on their distribution that is inconsistent with your wishes and instructions.
In some states, your lawyer can and should provide some high level coverage to protect mistakes you might make in titling your assets, if provided by state law. Some states support a General Assignment, a legal document that creates blanket protection, indicating to the court that your assets are in fact a part of your Trust, even if you have failed to title them correctly. This provides much more protection to the issues above, but is not absolute. Titling your assets correctly is the best protection. And as stated, this type of general protection is not available in all states, and it depends on your lawyer creating this protection for you.
Titling your assets correctly is an ongoing process. As new assets are acquired, you will need to think about the name you give to those assets. If you purchase an expensive car; should the paperwork be in your Trust’s name? If you take a new job, should your new 401K account be held in your Trust’s name, or should your Trust should be named as the primary beneficiary?
We come back once again to the annual review, or using a person or service to monitor your assets and flag you when an asset isn’t held in the Trust’s name.
For more information on Trust funding, refer to this article: Is Your Trust Correctly Funded?.
3: Inventorying Your Assets
What does ‘assets’ mean in the context of your Estate plan? It means everything that needs to be considered for distribution at the time of your passing, as well as anything that needs to be ‘taken care of’ in some way. Let’s break those two areas down a bit more.
The first are assets you want to be distributed. Your property, your bank and brokerage accounts, a partnership investment, your cars, jewelry, furniture, artwork, files and paperwork, etc. The second area includes things that need to be taken care of or should be taken care of. This category might include your email accounts, social media accounts, car and home loans, utilities and services you pay for, etc. Your Estate can’t ignore some of these (like a mortgage payment), and shouldn’t ignore others (like your email account).
Most Trust documents don’t provide a detailed list of these assets. They speak in generalities (e.g. evenly split my Estate holding between my three children). At the time of your death, if you have not created an inventory of these assets, then it is up to your Trustee to find/discover these assets. That is a process that can take hundreds of hours and not surprisingly one of the things Executors/Trustees complain about. They almost universally didn’t think about/consider this when they agreed to be an Executor/Trustee.
There are multiple ways to accomplish this task. This can range from manually creating a document which lists each asset and key information or instructions to using a service to help you accomplish this task. Key information might include the account number, a key contact associated with that account (e.g., your investment manager’s information), and possibly special instructions (e.g. I’d like this ring to go to my niece). Manually creating and maintaining that list is a very time intensive and tedious task. And based on our research, only 5% of Estate grantors take the time to do this. Interestingly, the other 95% understand it should be done and ‘have it on their to-do list’. Very high net worth grantors sometimes pay someone in their organization or their lawyer to build and maintain this inventory. That is a very costly alternative, often costing thousands of dollars a year. This is where Legacy Logix hopes to help. Our service has been built to assemble a top level view of your assets, and then we do the work of extracting and organizing and displaying the critical information about each asset.
Maintaining an Up-to-Date List of Estate Stakeholders
Your Estate stakeholders comprise everyone involved in some way with your Estate. This includes the obvious parties, such as successor Trustees, Executors, and beneficiaries (both people and organizations). It can also include your attorney, financial advisor, tax accountant, guardians for your children, etc. Having all relevant names and contact information in one place makes it easy to update when someone changes their address or phone number, or when you want to add or remove someone from your plan. And it will be greatly appreciated by those that have to settle your Estate when it’s time.
In Sum
If you have an Estate plan, you’re off to a great start - but it’s only the beginning of a life-long journey. If you want your plan to hold up over time, it’s critical to keep it accurate and up to date. Without regular maintenance, it is 100% guaranteed to fall out of sync with changes in your life. Sadly, you wouldn’t be alone - even high profile celebrities have had Estate planning misfires that left a substantial burden on their beneficiaries.
Weighing the importance of ongoing Estate management against the pain (and cost) of the effort is the primary reason we created LegacyLogix. We recognized that failure in this area shouldn’t be an option, and there had to be a better and easier way.
