If you ask most California estate planning attorneys why estate plans fail, the answer is often not poor drafting. Instead, the problem is that the client's circumstances changed, but the estate plan did not change with them.
Your family, assets, finances, and goals can change significantly over time. An estate plan that worked perfectly when you signed it may no longer accomplish what you intended years later. If the plan is not updated before your death, those changes can create problems for your beneficiaries and successor trustee.
For many people with a California revocable living trust, reviewing the estate plan with an attorney approximately every three years is a good practice. However, significant changes in your life or finances may require an earlier review.
But what should you actually discuss with your California estate planning attorney during that review?
In this article, we will discuss the most important parts of your estate plan to review every three years. We will also explain how keeping your estate plan current can make the eventual California trust administration easier for your successor trustee and beneficiaries.
Have Your Assets Changed Since You Created Your California Estate Plan?
Changes to your assets are one of the most important things to review with your California estate planning attorney. Your assets may change significantly during your lifetime, even when your family and estate planning goals remain the same.
Have You Purchased or Sold Real Property?
If you purchased real property, review the deed with your California estate planning attorney. Your attorney can confirm whether the property was properly transferred into your California revocable living trust.
If you sold real property that appears on your Schedule of Assets, you should also update the schedule. Property you no longer own generally should be removed.
Have You Opened, Closed, or Changed Financial Accounts?
Bank and investment accounts frequently change over time. You may change banks, close old accounts, or open new investment accounts.
If you opened a new account, confirm with the financial institution whether it is properly titled in your trust. Financial institutions have their own procedures for transferring accounts into a California revocable living trust. They may require you to provide a Certification of Trust and complete additional forms.
Your California estate planning attorney can help you understand the steps required to fund these accounts into your trust.
Accounts that have been closed should also be removed from your Schedule of Assets.
Are Your Assets Actually Titled in Your California Revocable Living Trust?
Do not assume that an account was transferred into your trust simply because you provided the financial institution with your trust documents.
Sometimes clients begin the process but do not complete all of the institution's required paperwork. As a result, the account may remain titled in the client's individual name.
During your estate plan review, confirm that assets intended to be held in the trust are actually titled in the name of the trust.
Is Your Schedule of Assets Up to Date?
Your Schedule of Assets is an important part of your estate plan. It identifies assets that you intend to hold as part of your California revocable living trust.
It can also become important if an asset was intended for the trust but was never properly transferred into it. In some circumstances, a properly prepared Schedule of Assets may provide important evidence in a future court proceeding seeking to establish that an asset belongs to the trust.
Review your Schedule of Assets with your attorney. Make sure it is current, properly executed when necessary, and accurately identifies the assets you intend to hold in your trust.
Do You Own an LLC or Shares in a Corporation?
Business interests should also be part of your estate plan review.
If you own an interest in an LLC, corporation, partnership, or other business, ask your attorney whether that interest should be transferred or assigned to your California revocable living trust.
Your attorney should review the applicable business documents before making that determination. Depending on the circumstances, an assignment of membership interest, assignment of stock, or other documentation may be appropriate.
Properly addressing these interests now can make it much easier for your successor trustee to identify and administer them after your death.
If You Are Married, What Happens When the First Spouse Passes Away?
One of the most overlooked provisions in a married couple's estate plan is what happens when the first spouse passes away.
Ironically, this can also be one of the most consequential parts of the trust. Depending on how the trust is drafted, certain provisions may become irrevocable after the first spouse's death. At that point, the surviving spouse may have limited ability to change them.
These provisions can also have significant tax and administrative consequences. In some cases, the surviving spouse may lose control over certain assets. The surviving spouse may also have additional California trust administration, accounting, or reporting responsibilities.
For these reasons, married couples should carefully review the first-death provisions of their trust while both spouses are alive.
Does the Trust Divide Into Separate Trusts After the First Death?
Ask your California estate planning attorney what happens to the trust when the first spouse dies.
Does everything remain in one trust for the surviving spouse? Or does the trust divide into two or more separate trusts?
Depending on when the estate plan was drafted, you may see provisions creating a Survivor's Trust, Decedent's Trust, Bypass Trust, Credit Shelter Trust, Family Trust, or other subtrusts.
Do not focus only on the names of these trusts. Ask your attorney to explain what actually happens to the assets after the first spouse's death.
What Becomes Irrevocable After the First Spouse Dies?
You should understand whether any portion of your trust becomes irrevocable after the first death.
An irrevocable trust after the first spouse's death may be appropriate in certain circumstances. It may serve tax-planning purposes or protect the deceased spouse's intended beneficiaries. It may also be important in blended families or when spouses have separate property.
However, a mandatory irrevocable trust that no longer serves the couple's goals can create unnecessary complications for the surviving spouse.
This is particularly important with older estate plans. The couple's financial circumstances, family situation, and applicable tax laws may have changed substantially since the documents were prepared.
What Control Will the Surviving Spouse Have?
Ask your attorney exactly what the surviving spouse will and will not be able to do after the first death.
Will the surviving spouse continue to control all of the trust assets? Will some assets become part of an irrevocable trust? Can the surviving spouse change the beneficiaries? Can the surviving spouse freely use the assets?
These questions should be answered while both spouses are alive rather than discovered during the California trust administration after one spouse has passed away.
What California Trust Administration Will Be Required After the First Death?
The amount of trust administration required after the first death depends heavily on the terms of the trust.
If the trust remains revocable and the surviving spouse continues to control the assets, the administration may be relatively limited.
However, if a portion of the trust becomes irrevocable, additional California trust administration may be required. Depending on the circumstances, this may include identifying and allocating assets, obtaining valuations, keeping separate records, obtaining a separate tax identification number, filing tax returns, providing notices, and accounting to beneficiaries.
Understanding these requirements in advance allows the couple to decide whether the benefits of the structure justify the additional administrative burden.
Why Should These Provisions Be Reviewed While Both Spouses Are Alive?
The best time to review these provisions is while both spouses are alive and able to make changes.
Once the first spouse dies, some provisions of the trust may become irrevocable. The surviving spouse may then have limited options for changing them. Depending on the circumstances, modifying an irrevocable trust may require beneficiary consent, a court proceeding, or may not be possible at all.
That is why reviewing the first-death provisions should be an important part of every married couple's periodic estate plan review.
You should understand what happens when the first spouse dies before the first spouse passes away. If the existing structure no longer reflects your wishes, financial circumstances, or tax planning needs, it is much easier to address the problem while both spouses are still alive.
Have Estate Tax Laws or Exemption Amounts Changed?
Federal estate tax laws can change significantly over time. In particular, the federal estate and gift tax exemption amount has changed considerably over the past several decades.
The exemption amount can directly affect the estate planning needs of a family. A trust that was appropriate when it was drafted may contain tax-planning provisions that are no longer necessary. Likewise, changes in the law or the value of your estate may create new tax-planning considerations.
During your estate plan review, discuss the current federal estate tax exemption with your attorney. You should also review whether any changes in federal or California tax law affect your existing plan.
This is particularly important for married couples with older trusts. Some trusts contain provisions requiring assets to be divided into separate trusts after the first spouse's death for estate tax planning purposes. Changes in the exemption amount, tax laws, or the couple's financial circumstances may affect whether that structure still accomplishes the intended goals.
Tax laws will continue to change. Your estate plan should therefore be reviewed periodically to determine whether its tax provisions still make sense for your family and financial circumstances.
Are Your Beneficiaries and Gifts Still Appropriate?
Your intended beneficiaries may change throughout your lifetime. The people you wanted to inherit your estate when you created your trust may not be the same people you wish to benefit today.
Are the Right People Still Receiving Your Estate?
Review the beneficiaries named in your trust with your California estate planning attorney. Consider whether your current plan still reflects your wishes and family circumstances.
For example, parents of young children will often leave most or all of their estate to their children. Later in life, however, they may also want to leave specific gifts to grandchildren.
Your family may also grow or change in other ways. You may have additional children or grandchildren, a beneficiary may pass away, or relationships may change.
An estate plan review gives you an opportunity to consider these changes. You can then confirm that your assets will ultimately pass to the people and organizations you currently intend to benefit.
Should Your Beneficiaries Receive Their Inheritance Outright or in a Trust?
The appropriate way for a beneficiary to receive an inheritance can change over time.
For example, parents of young children may provide that their children receive their inheritance only after reaching a certain age. Those restrictions may no longer be necessary when the parents are older and their children are mature, financially responsible adults.
The opposite can also occur. Parents may initially provide that a child receives an inheritance outright at age 25. Years later, they may realize that the child has difficulty managing money.
In that situation, the parents may want to reconsider an outright distribution. Instead, the child's inheritance could remain in trust for a longer period or potentially for the child's lifetime.
The trust can also give the trustee discretion over distributions. For example, distributions may be permitted for the beneficiary's health, education, maintenance, and support.
The appropriate structure depends on the beneficiary's circumstances and the settlor's goals.
Are the Ages for Receiving an Inheritance Still Appropriate?
You should also review the ages at which younger beneficiaries become entitled to their inheritance.
Parents of very young children may initially believe that age 21 or 25 is an appropriate age to receive an inheritance. Once those children become teenagers or young adults, the parents may have a very different perspective.
They may decide that age 30, 35, or even 40 is more appropriate. Alternatively, they may prefer distributions in stages rather than giving the entire inheritance to the beneficiary at one time.
There is no single appropriate distribution age for every family. A periodic estate plan review allows you to reconsider these decisions as you learn more about your beneficiaries and their ability to manage money.
Does a Beneficiary Need Additional Protection or Help Managing an Inheritance?
A beneficiary's financial or personal circumstances may also change after you create your estate plan.
For example, a beneficiary may develop a disability or other circumstances that make special planning appropriate. If the beneficiary receives or may become eligible for means-tested government benefits, your attorney can advise whether a special needs trust or other planning should be considered.
A beneficiary does not necessarily need to receive government assistance for a trust to be useful. Some beneficiaries simply have difficulty managing money.
In those circumstances, the settlor may want an independent trustee to control distributions. The trust might permit distributions at the trustee's discretion, provide specified monthly or annual amounts, or establish other standards appropriate for that beneficiary.
Reviewing these provisions periodically allows your estate plan to account for the beneficiaries you have today rather than the circumstances that existed when you originally signed your trust.
Should Smaller Charitable Gifts Be Made During Your Lifetime?
If your trust includes gifts to charitable organizations, consider reviewing those gifts with your California estate planning attorney.
This can be particularly important for older clients whose trusts include relatively small charitable gifts. If a charitable gift represents only a small portion of the estate, the settlor may want to consider making the donation during their lifetime and removing the gift from the trust.
For example, suppose your trust provides for a $1,000 gift to a school or local charity. Making that $1,000 donation during your lifetime may be relatively simple. You also have the opportunity to see the organization benefit from your gift.
The same gift can be more complicated when made as part of a trust administration after your death. The successor trustee must identify and contact the organization, confirm the appropriate recipient, document the distribution, and complete any other steps required before closing the trust.
Depending on the circumstances, even a relatively small charitable gift may require additional attorney time and communication with the charity. It may also add another step that must be completed before the California trust administration can be finalized.
Charitable giving can be an important part of an estate plan. However, during your periodic estate plan review, consider not only whether you still want to make the charitable gift, but also when and how it should be made.
Are Your Successor Trustees and Other Fiduciaries Still the Right People?
Just as your beneficiaries may change over time, the people you selected to manage your affairs may no longer be the right choices.
Reviewing your successor trustees and other fiduciaries should be an important part of every California estate plan review.
Is Your Successor Trustee Still the Right Choice?
The person you originally selected as successor trustee may no longer be the best person for the role.
Perhaps your chosen successor trustee has passed away. They may have moved to another state or country, making it more difficult for them to administer your California trust. You may also have concerns about their financial responsibility, judgment, availability, or ability to work with your beneficiaries.
Your successor trustee may eventually be responsible for managing significant assets, paying expenses, communicating with beneficiaries, and distributing your estate.
Make sure the person you selected is still someone you trust and believe is capable of performing these responsibilities.
Are Your Financial and Health Care Agents Still Appropriate?
You should also review the agents named in your durable power of attorney and Advance Health Care Directive.
For example, you may have selected a child as your health care agent because that child lived nearby. If the child has since moved across the country, another person may now be better positioned to act quickly if a medical emergency occurs.
Your health care agent should be someone you trust to understand and follow your wishes. You should also consider whether that person will be available and willing to act when needed.
Similarly, review the individuals authorized to handle your financial affairs if you become incapacitated.
Are Your Guardian Nominations Still Appropriate?
If you have minor children, review your nominations for guardians as your children and family circumstances change.
The people you selected when your children were infants may no longer be the best choices years later. A proposed guardian may have moved away, developed health problems, or experienced other changes that affect their ability to care for your children.
Your older children may also eventually become adults. In some families, an adult child may become an appropriate choice to care for younger siblings.
Review both your long-term and temporary guardian nominations with your California estate planning attorney. Make sure the people you selected are still available, willing, and appropriate to care for your children if the need arises.
Are Your Beneficiary Designations Coordinated With Your Estate Plan?
Not every asset passes according to the terms of your California revocable living trust. Certain assets, including retirement accounts and life insurance policies, generally pass according to their beneficiary designations.
For this reason, your beneficiary designations should be reviewed as part of your overall estate plan.
Review Retirement Accounts and Life Insurance
Review the beneficiaries listed on your IRAs, 401(k)s, other retirement accounts, and life insurance policies. Beneficiary designations that made sense when you created your estate plan may no longer reflect your current wishes.
For example, parents with minor children may have named their spouse as the primary beneficiary and their trust as the contingent beneficiary. If the spouse dies first, the trust can then control how the assets are ultimately managed for the children.
Years later, those children may be adults and financially responsible. The parents may want to discuss whether naming the adult children directly as beneficiaries is now more appropriate.
However, retirement account beneficiary designations can have important income tax and estate planning consequences. Before changing them, discuss the available options with your California estate planning attorney and, when appropriate, your tax advisor.
Review Payable-on-Death and Transfer-on-Death Designations
You should also review any payable-on-death (POD) or transfer-on-death (TOD) designations on your accounts.
Depending on your estate plan, you may have named your trust or particular individuals as beneficiaries. Those designations should be reviewed periodically to make sure they still reflect your wishes.
Most importantly, make sure your POD and TOD designations work together with your overall estate plan rather than unintentionally contradicting it.
A carefully drafted trust cannot control an asset that passes directly to someone else through a beneficiary designation. Reviewing these accounts with your California estate planning attorney can help ensure that your trust and beneficiary designations accomplish the same overall plan.
What Happens If You Become Incapacitated?
Estate planning is not only about what happens after your death. Your estate plan should also address what happens if you become unable to manage your own financial or health care decisions.
Incapacity planning may receive less attention from younger clients. However, it can become increasingly important as you get older.
How Does Your Trust Define Incapacity?
Review how your California revocable living trust defines incapacity and how that determination will be made.
For example, does incapacity require the opinion of one physician or multiple physicians? Does the definition reflect when you would actually want someone else to take control of your trust?
Review these provisions with your California estate planning attorney to make sure they continue to reflect your wishes.
Who Takes Control of the Trust If You Become Incapacitated?
You should also understand who will manage your trust if you become incapacitated.
Ask your attorney when a successor trustee takes over, what authority that person will have, and what happens if you later regain capacity.
This becomes particularly important later in life. A well-drafted incapacity plan can allow someone you trust to manage your assets without unnecessary uncertainty or court involvement.
Are Your Durable Power of Attorney and Advance Health Care Directive Still Appropriate?
Your Durable Power of Attorney and Advance Health Care Directive should also be reviewed periodically.
Make sure the agents you selected are still appropriate. You should also understand how your durable power of attorney interacts with your California revocable living trust.
For example, you may want your agent under your durable power of attorney to have certain authority relating to your trust. Depending on the authority involved, your durable power of attorney and trust may both need appropriate provisions for your agent to exercise that power.
Reviewing these documents together helps ensure that your incapacity plan works as one coordinated plan rather than as a collection of separate documents.
Have There Been Other Major Changes in Your Life?
Even if your scheduled three-year review has not arrived, certain major life events should prompt you to contact your California estate planning attorney.
Marriage, divorce, the birth of additional children or grandchildren, and the death of a child or other beneficiary can significantly affect your estate plan.
You should also discuss other significant changes with your attorney. These may include moving to another state, receiving a substantial inheritance, starting or selling a business, or experiencing a significant change in your financial circumstances.
Your estate plan should reflect your family, assets, and wishes as they exist today rather than the circumstances that existed when you originally signed your documents.
How Can Reviewing Your Estate Plan Make California Trust Administration Easier?
A current and properly maintained estate plan can make the eventual trust administration considerably easier for your successor trustee.
When an estate plan has not been reviewed for many years, the successor trustee and attorney may have to determine what happened to old assets, locate newly acquired assets, interpret outdated provisions, and determine whether the trust still reflects the settlor's circumstances at the time of death.
Regular estate plan reviews can address many of these issues while the settlor is still available to provide answers and make changes.
Want to learn more? Read our article: What Should Families Take Care of Before a Parent Dies?
Proper Trust Funding Can Help Avoid a California Probate
One of the primary purposes of a California revocable living trust is to allow assets held in the trust to be administered without a formal California probate proceeding.
However, creating a trust alone does not ensure that every asset will avoid probate. Assets intended for the trust generally need to be properly transferred or otherwise coordinated with the estate plan.
An estate plan review provides an opportunity to identify assets that may have been left outside the trust and address them while the settlor is still alive.
Doing so may reduce the likelihood that the successor trustee will later need a California probate proceeding, Heggstad petition, small estate procedure, or another method to deal with an asset that was not properly funded into the trust.
The Caliornia Courts website can also explain how a California probate can be avoided.
Want to learn more? Read our article: What Happens If Assets Are Left Outside a Trust in California?
An Updated Schedule of Assets Can Help the Successor Trustee Locate Property
An updated Schedule of Assets can also serve a practical purpose during California trust administration.
After the settlor's death, one of the successor trustee's first responsibilities is determining what assets exist and where they are located. A current Schedule of Assets can provide the trustee with an important starting point.
It may identify real property, financial institutions, business interests, and other assets that the successor trustee needs to investigate and administer.
A Schedule of Assets may also provide important evidence regarding the settlor's intent if an asset was intended to be part of the trust but was never properly transferred.
Depending on the circumstances, this may become relevant to a Heggstad petition or other court proceeding.
Clear and Current Distribution Provisions Can Reduce Problems With Beneficiaries
Distribution provisions that reflect the settlor's current wishes can also reduce uncertainty during trust administration.
Problems are more likely to arise when a trust was drafted many years before the settlor's death and no longer appears consistent with the settlor's later family circumstances.
Beneficiaries may question whether an old provision actually reflected what the settlor wanted at the end of their life. Although the written terms of the trust generally control, these circumstances can create disagreements and potentially contribute to disputes.
Regularly reviewing and updating distribution provisions provides stronger evidence that the estate plan reflects the settlor's current intentions.
Simplifying Gifts Can Reduce the Successor Trustee's Work
A periodic estate plan review also provides an opportunity to simplify smaller gifts.
As discussed above, a settlor may decide to make certain charitable gifts during their lifetime rather than requiring the successor trustee to make them after death.
The same consideration may apply to smaller gifts to friends, grandchildren, or other individuals. Whether a lifetime gift is appropriate will depend on the settlor's financial circumstances and wishes.
You should also review your personal property memorandum, if your estate plan includes one. Make sure it accurately identifies any jewelry, artwork, furniture, family heirlooms, or other tangible personal property that you want particular individuals to receive.
Clear instructions can make distributing personal property considerably easier for the successor trustee and can reduce disagreements among family members.
Review Your Estate Plan Regularly
Creating an estate plan is an important first step, but estate planning should not end when you sign your documents.
Your family, assets, financial circumstances, and wishes can change significantly over time. Without periodic reviews, an estate plan that once worked well may no longer accomplish what you intended.
An outdated plan can also create unnecessary complications for your successor trustee during the trust administration.
Reviewing your estate plan with an attorney every few years, and after significant life events, can help prevent these problems. It allows you to confirm that your trust reflects your current assets, beneficiaries, fiduciaries, and wishes.
Most importantly, regular reviews allow you to address potential problems while you are still able to make changes.
A current estate plan can help ensure that your assets are distributed according to your wishes. It can also provide clearer evidence of what you intended near the end of your life, rather than relying solely on decisions you made 10 or 20 years earlier.
Keeping your estate plan current can ultimately make the process easier for your successor trustee and the beneficiaries you intended your estate plan to protect.
Why Work With Amichai Law on Your California Estate Plan?
At Amichai Law, we help California individuals and families create and maintain estate plans that reflect their current wishes, assets, and family circumstances.
Estate planning is not simply about preparing documents. A well-designed estate plan should work when your family eventually needs to rely on it.
Because our practice includes both estate planning and trust administration, we regularly see what happens after a settlor passes away. This experience helps us identify estate planning issues that can create unnecessary difficulties for successor trustees and beneficiaries later.
If you already have a California estate plan, we can review your existing documents with you. We can discuss whether your trust still reflects your wishes and whether changes in your family, assets, or financial circumstances require updates.
We can also review trust funding, beneficiary provisions, successor trustees, incapacity planning, and other important parts of your estate plan.
If it has been several years since you reviewed your estate plan, contact Amichai Law to schedule an estate plan review.
Disclaimer
This article is provided for general informational purposes only and does not constitute legal or tax advice. Estate planning laws and tax laws can change, and the appropriate estate plan depends on each person's individual circumstances.
Reading this article does not create an attorney-client relationship with Amichai Law, APC. You should consult with a qualified attorney regarding your particular circumstances before making changes to your estate plan, trust, beneficiary designations, or ownership of your assets.
Tax matters may also require advice from a qualified tax professional.