As we all know, life happens. There is really nothing we can do about it. However, some of the most common life events can dramatically affect your estate plan and make it out of date. If you think your estate plan is like a slow cooker and you can set it and forget it, you and your loved ones may be in for a stomach-turning surprise when it is time to put your plan into action.
As an Estate Planning Attorney in Austin, I have the pleasure of helping clients reassess their goals after life events. Sometimes these are joyous life events like a wedding or the birth of a child or grandchild. Sometimes although the life events are may involve the loss of a loved one, the planning can be hopeful, nonetheless. Losing someone can lead to self-reflection and new growth. By not updating a stale estate plan after such events, you risk not leaving the legacy you intended Let us look at some common life changes and their impact on your already established estate plan.
It is common for parents to have their estate plan prepared after the birth of their first child. However, depending on what provisions are in the first iteration, a second child might have difficulty getting their share without court involvement if the clients do not revise their plan after the birth of a subsequent child.
Ten years ago, Phil and Claire had a daughter named Haley, which prompted them to have a revocable living trust prepared. They outlined how the trust directed the money and property management for Haley's benefit. Five years later, Phil and Claire had a second daughter, Alex. Months after Alex's birth, Phil and Claire passed away in a plane crash. However, Phil and Claire had not revisited their estate plan after Haley's birth, so she is not mentioned anywhere in their trust. For Alex to receive any benefit from her parent’s money and property, someone will need to petition the probate court to sort out the situation. This process can be time-consuming, costly, and public. It is precisely the opposite outcome Phil and Claire wanted when they initially created a revocable living trust.
Many grandparents love spending time with and supporting their grandchildren in any way they can. However, depending on the family structure, a grandchild who has been left out of an estate plan may have no recourse and may miss out on the opportunities the grandparents may otherwise have intended their grandchildren to have.
Jay and Gloria had two children, Manny and Joe. In 2020, Jay and Gloria met with their estate planning attorney to create an estate plan. Because they strongly believed in the value of higher education, they created subtrusts for their two grandchildren, Manny's daughters, Mary and Ellen, to help offset the cost of their future tuition. In 2021, Joe welcomed a son, George. Unfortunately, Jay and Gloria passed away shortly after that. Although updating their trust was on their to-do list, they never got around to it. Therefore, when Jay and Gloria passed, Mary and Ellen were the only grandchildren to receive money for their education, leaving George to find alternate avenues for funding his education.
Several people are involved in creating a will or trust. Some are creating the estate planning documents (will-maker or trustmaker, respectively), those who receive a benefit from the estate planning document (beneficiaries), and those who are in charge of carrying out the document’s instructions (personal representative, executor, or successor trustee). Aside from the will or trust maker, the death of any of these individuals can significantly impact the estate plan. A beneficiary’s demise may mean that others receive a larger share or that the deceased beneficiary’s descendants receive that share. Reviewing your estate plan to ensure that it still adheres to your wishes is essential, even if your first-named beneficiary is no longer living.
Dr. Miura, a single woman, created a will, leaving her modest amount of money and property to her mother, her only living parent. Ten years later, Dr. Miura and her mother passed away while bungee jumping in Costa Rica. Dr. Miura named no contingent beneficiary in her estate plan. As such, the probate judge must look to the state inheritance law. Therefore everything goes to her only living sibling, her estranged brother, Asher. Dr. Miura had not seen or communicated with him for fifteen years!
In addition, you must select backups for your personal representative, executor, or successor trustee in case the first person you named passes away (even if it is before you). If you named no alternate or not enough alternates, then depending on your estate plan’s terms, your loved ones may be able to pick the successor person, or a judge may have to look to state law to determine whom to appoint as the new person in charge. For families prone to conflict, this type of situation could spell disaster.
Ella named her wife, Susan, as the successor trustee of his revocable living trust. Under the wise guidance of her estate planning attorney, Ella named her sister, Pam; her son, Conner; and his best friend, Lily, as additional successor trustees. Ella, Susan, and Pam passed away while visiting Ella's mother six years later. Because Ella had named backup successor trustees, her trust’s administration continued smoothly under Conner's direction, preserving Ella and Susan's nest egg and keeping nosy relatives and neighbors from learning their financial details.
Purchasing a new home can dramatically impact a trust-based estate plan and make it out of date. Typically, for this type of plan to work as intended, either the trust must own all accounts and property, or one must name the trust as the beneficiary. Usually, when you create the trust, you prepare a deed transferring your home to it, making it easy to ensure that the trust owns your home (if your estate planning attorney recommends that strategy).
However, if you decide to buy a new or second home years later, you must remember to fund your new real estate into your trust to avoid probate. When you purchase real estate, most title companies will assume that you are doing so as an individual or, if you are married, as a married couple. If you want to purchase the home in the trust’s name, you will need to notify the title company or follow up with your estate planning attorney after the transaction has closed to transfer the new property into the trust.
Suppose you do not transfer the property to your trust then upon your death. It will go either to the surviving owner (if owned as joint tenancy with rights of survivorship or tenancy by the entirety) or through probate if you own it individually or as a tenant-in-common.
Jay had a revocable living trust that he established in 2000. When he signed the trust, he also signed a deed transferring his home to the trust. In 2018, Jay purchased a vacation home on the Western Florida shore. However, he forgot his estate planning attorney’s wise advice and had the vacation home deeded to himself as an individual. In 2020, Jay passed away as a resident of Texas. Because Roy’s vacation property is located in a state other than where he resided at the time of his death, Jay's loved ones must open two probate proceedings to transfer the property (one in Texas and one in Florida). This process will probably be very time-consuming and expensive for Jay's family, even though he had a revocable living trust.
Marriage is an exciting and sometimes complicated process. You may have your own money and property, and over the coming years, you will probably accumulate money and property jointly with your spouse. Keeping straight which property is separate and which is joint, outlining your wishes for what you want to leave to your spouse, and deciding what decision-making authority you want your spouse to have in the event you are unable to make your own decisions are all crucial elements that an estate plan should cover. If you do not update your estate plan after your marriage, a court may have to be involved for your spouse to make decisions for you and receive what you want them to have.
In 1999, Mitchell met with an estate planning attorney to complete his estate plan, including a last will and testament, a financial power of attorney, and a medical power of attorney. Being single, Mitchell named his sister Claire as his trusted decision-maker under these documents. In 2001, Mitchell married Cam. On their honeymoon in Hawaii, Mitchell fell off a balcony and became comatose. Cam contacted Mitchell's medical insurance to work out the details for his treatment. Still, he had no access to the information because Mitchell did not list him as his agent under a financial or medical power of attorney. Although Mitchell wanted Cam to have the authority to make his financial and medical decisions, he has little ability to do anything without involving a court because he never specifically gave him that authority in valid legal documents.
It is natural for married couples to name each other as their trusted decision-makers in their estate plans (e.g., executor, personal representative, trustee, and agent under financial and medical powers of attorney). It is also probable that you named your spouse as a beneficiary of some of your money and property. However, if you and your spouse divorce, your wishes will change. State law varies as to the effect of a divorce on a person’s estate planning.
To avoid complicating matters, it is best to update your documents so there is no question about your intent. Because of the varying treatment under the law, you must meet with an estate planning attorney after your divorce. You should replace your trusted decision-makers and name new beneficiaries if nothing else. The last thing you want is to give your ex-spouse a reason to be involved in your estate plan, even if they will receive nothing.
We applaud you for taking the crucial step of having an intentional estate plan prepared instead of relying on the state’s default rules. However, estate planning is not just a once-in-a-lifetime event. Your plan is a set of living, breathing documents that many everyday life events can impact. If you or your loved ones have experienced any of the above events recently (or since you last updated your estate plan), now is the time to call us to schedule a review of your documents. Do not wait until it is too late. The outcome may lead to disaster for those you care about most. Contact us today.
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14425 Falcon Head Blvd
Austin, TX 78738