McNees Insights: Estate Planning Newsletter
January 7, 2019
Estate Planning After the Mid-Term Elections
Now that the mid-term elections have passed, it may be an opportune time for clients to review and possibly update their estate plans. Although the estate plans of most clients will not be affected by the mid-term elections, a periodic review of your estate plan for many reasons is recommended.
The mid-term elections saw the Republican party lose the House but solidify its hold on the Senate. Of course, the Republican party has the executive branch until at least the 2020 general election. Under the 2017 tax act, the changes to the federal estate and gift tax laws and many of the income tax changes are set to expire on January 1, 2026. There is a possibility that the 2017 changes to the tax laws will be extended or made “permanent.” However, there is a risk that after the 2020 general election the laws may change depending on the make-up of Congress and the executive branch after that election.
I do not expect any tax law changes in the next two years. My belief is that the House of Representatives will focus on its oversight role of the executive branch, realizing that passing any meaningful legislation will be difficult in a divided government. Therefore, clients should be thinking about and focusing on the following:
- Should your estate plan be revised given any potential tax law changes that may occur after 2020 or after 2025? Many estate plans contain formula clauses that the effect of which is dependent upon the estate tax exemption amount. The result of this formula may or may not be what you desire given the current level of the federal estate tax exemption amount.
- Clients should review existing life insurance policies to confirm the level of death benefit is still necessary and to also confirm that any permanent life insurance products are performing as illustrated and are not in danger of lapsing.
- Clients with more significant estates should consider gifting assets over the next two years to ensure use of the increased gift tax exemption amount. Gifting assets will shift the appreciation and value outside of the estate and will save estate taxes in the long run. Also, gifting income-producing assets can result in income tax savings within the family unit.
- Although not directly related to the tax laws, the stock market may be headed for a period of decline in the next few years. If so, clients should consider gifting marketable securities to family members (whether in Trust or outright) to take advantage of the lower values of these assets. In addition to outright gifts, clients could consider grantor-retained annuity trusts for marketable securities, which is a type of trust designed to provide the client with an income stream and a remainder interest to the family members.
As the mid-term elections and the 2017 tax act demonstrate, the laws are always changing and the personal circumstances of clients often change. Therefore, a periodic review of your estate plan is recommended no matter the political or economic climate. But, in the current environment a review is likely a good idea so that you may make sure your plan is up-to-date and you may take advantage of any tax laws that could be changed or expire in the future.
Hold On (to the Original Will)
The digital age has brought with it options for document storage (a hard drive, the cloud) and delivery (email; file sharing) that were uncontemplated as the law of Wills developed over the 19th and 20th centuries. While certain other areas of law and commercial practices have evolved to embrace features such as electronic signatures, online document storage and wide acceptance of copies of documents, certain traditional rules remain in place. For estate planning purposes, an original Will retains its traditional and singular importance.
With very narrow exception, discussed below, the original paper copy of a Will is needed for probate, the process that establishes the Will’s authenticity. If the original document has been lost, it is presumed to have been destroyed and depending on the circumstances, the testatrix may be deemed to have died intestate, taking her specific intentions as to disposition of her assets and appointment of her desired fiduciaries with her. For this reason, it is imperative that as much care be take in storage of a Will as in its preparation and execution.
It is possible to probate a copy of a Will if the Will’s proponent can meet the high burden of proof that (a) the will was duly executed and that the testator had capacity to execute it, (b) a diligent search has been made for the original, and (c) and the contents of the Will are as stated in the copy. Two witnesses are required to give such proof and the proof of each element must be sufficient to overcome the presumption that the Will was destroyed and therefore revoked.
Clients typically employ one of the following storage options for original Wills and other documents:
- Safe Deposit Box. Although falling out of favor as banks merge and local bank branches close, storage of a Will in a bank safe deposit box affords both security for the documents and access by the executor when needed. While access to a safe deposit box is restricted following death, the law provides that an executor may access the box to remove the Will.
- Fire-proof safe. An in-home safe can be a good alternative to a bank safe deposit box, assuming that the safe is in fact fire-proof and water-tight.
- Law Firm vault. Many attorneys do offer to store original documents for free. The client should know that storage of the documents with the firm neither obligates the client to remain a client nor the executor of the Will to retain that same counsel. Attorneys have a professional responsibility to deliver original documents to authorized parties promptly upon request. Many firms, for reasons of liability and cost, will not agree to hold documents.
- Client’s cabinet or desk drawer. Any storage option that risks periodic reshuffling of papers is far less desirable than the above choices. As clients age, there is also a concern that third parties such as caregivers and household service providers may gain improper access to personal documents.
Whatever the storage option, care should be taken to record the location of the stored document in the client’s file and in other places. A good practice is for clients to make a list of the location of important documents and deliver that list to a trusted family member or friend, ideally the person who will act as executor.
As modern technology exerts its influence and younger generations become frustrated with antiquated rules, many jurisdictions are likely to develop alternative options and legal processes for storing digital copies of estate planning documents. Inevitably, sometime in the future, an original Will won’t be necessary but for now, hold on!
© 2019 McNees Wallace & Nurick LLC
McNees Insights is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.