Have You Ever Tested Your Estate Plan?

You are a smart person who has been around financially. Your success led you to realize that you would have financial assets left at death and you have created your estate plan.

You probably have a will, maybe a trust or two, possibly a family business or company or partnership and you have tended to details such as assigning powers of attorney and healthcare wishes.

But have you ever tested that estate plan?

No, I don’t mean die and watch what happens from the hereafter! Have you ever gathered all the pertinent information and walked through what you think will actually happen in various death scenarios at your house? What happens if you die and leave behind minor kids and spouse? What if your spouse dies first? What if you die and your spouse is depending on you for healthcare? What if you die together?

Have you ever reviewed your plan, in combination with your assets and your life situation, with your estate planning lawyer and your accountant? Have you ever walked through your wishes in detail with your executor or successor trustee?

Take a look at our latest article on the home page called (surprisingly enough) Test Your Estate Plan.

My answer to those questions is mainly no, however, yesterday I did do a self review of what I thought would happen to our assets in three scenarios: I die this year and my spouse lives (we no longer have dependents). He dies and I live. We both die at the same time.

How long does a self review take?

I spent about an hour on the task, after checking my premises with my spouse for 5 minutes.

How do you do a self review of your estate plan?

If you clicked over to read Test Your Estate Plan, you noticed that the tasks on it were pretty thorough and involved time spent with paid advisers.

My self-review was more limited that that. All I did was create a one page spreadsheet with each of the 3 scenarios.

In the scenario for if I died this year and my spouse lived on, I listed out all of the values of the assets that would be available to him free and clear without restriction.

These included things such as our joint assets, assets in his living trust, his IRAs and my IRAs (since he can assume them as his own and do whatever he wants to with them).

I also listed out the values of the assets that would be available to him, but with restrictions. These included things such as a joint llc we have, the assets in my living trust – which due to the $5 million estate tax exclusion limit this year would all roll into the irrevocable trust to be held for my children, and some other assets that would have to go through probate but that he would get in the end.

Then I listed out any assets he would not have available to him at all (a Roth IRA intended for the grandkids).

After that I listed out the income he would have available.

I did the same thing for the second scenario, the one in which I die and he lives – with the same categories as above.

For the third scenario, I took the approach of separating the values of assets that:

• Would be distributed immediately to specific beneficiaries because we named beneficiaries on the asset itself.
• Would go through probate because we have screwed up and not done what we need to do to allow our executor to avoid it.
• Would be distributed through our after death trusts (we are each set up with a revokable living trust that becomes two irrevocable trusts upon our death – one to hold the estate/gift tax exclusion amount in effect the year we die and the other to hold all else and go to our spouse in a marital trust

Results and action items based on my estate plan self-review.

I’ve had nagging thoughts in the back of my head that we weren’t set up just right between our estate plans and our asset titles and I was correct.

Here are some of the things we need to do to get it the way it needs to be:

• Figure out what to do with joint assets if we die together, in order to avoid probate on them.

We like the ease of passing the assets to each other if one dies and the other lives, and we like not having the hassle of having them in a trust. The joint assets are things like our house, cars and a bank account we use for periodic bills.

• Re-write the operating agreements for our two llcs so that we can avoid having them go through probate if we die together or even if I die first (one is a single member llc – me!).
• Even out the value of assets in our respective living trusts. We currently have more assets in one than the other, which means that one of us will be more restricted in the ways we can spend that money when it goes into the irrevocable trust at our death.
• Walk through the plan and our assets with our lawyer/accountant next year (after estate taxes are more firmed up for the future) to make needed revisions to our will/trust documents.
• Walk through the plan and assets with our son (successor trustee and executor of our estate).

Have you checked your estate plan in the past 5 years to see if it will (still) do what you intend it to do? What did you find?