There are key events in life that should trigger everyone to review their estate plan and financial documents. One such event is the death of a loved one. After a loved one’s death, the first priority is to care for yourself and your family members as you grieve the loss. As life gradually returns to more normal, this is the time to review your estate planning documents before you get caught back up in the demands of life. We have reviewed the major steps that you should take after a loved one dies in other blog posts. In this blog post, the focus will be on estate planning.
While it is true that estate plans are in place for when you should become incapacitated or die, the death of a loved one can have a significant impact on these plans. Keep the following questions and points in mind as you review your documents.
Who are your heirs?
You would need to revise your estate documents if your deceased loved one was listed as an heir to your property or money under your Last Wil and Testament or a revocable living trust. You have probably put a lot of thought into how you want your hard-earned possessions and wealth to be distributed after your death. The main reason people take the time to develop a Will and revocable living trust is to have control over this distribution. If you name a single beneficiary and this person passes before you do, the accounts and money become part of your general estate. They are distributed according to the remaining terms of your will. Not clearly identifying primary and secondary beneficiaries and updating these documents when people die, marry or have children can mean that your property and accounts are not being distributed in the way you intended or even the way your primary beneficiary would have intended, had they received them and then passed them on to their heirs.
Some states have passed anti-lapse laws to protect against these circumstances. In these states, the primary beneficiaries’ heirs would receive the property and wealth. There are caveats and distinctions in the law in different jurisdictions. For example, some laws limit the application of the anti-lapse law to blood relatives.
If you have a revocable living trust, you may have provisions in place to name how your gifts are distributed in case a beneficiary is deceased. However, if there have been significant changes in your family, such as deaths, births, and marriages, your documents may not be up-to-date. If your revocable living trust is kept updated with clear instructions, then it is much easier for your trustee to administer your trust and prevent fighting among family members as they try to interpret your wishes.
Who are your trusted decision makers?
When you prepared your comprehensive estate plans, you probably chose a trustee for any trusts you may have as well as agents to act as financial and health care powers of attorney. These people are your choices to act on your behalf if you should become incapacitated or die. If your deceased loved one filled any of these roles, you would need to update these documents. To prevent this problem from occurring, chose backup people to serve each of these key roles for you. Regardless, it is still a good idea to update these documents, so there is no confusion when your first choice has already passed away.
Executor: The executor of your Last Will and Testament is responsible for paying your outstanding debts, collecting all of your accounts and property, and distributing them to your heirs as directed in your will. This role can be time-consuming as they are charged with winding up all of your affairs. Be sure to choose a backup in case your executor dies before you. If this should happen and you do not have a named backup, the probate court will use your state’s laws to determine who should serve as executor of your estate when you die.
Co-trustee or Successor Trustee of your Revocable Living Trust: A co-trustee manages your trust along with you while a successor trustee manages after you. A trustee is charged with managing, investing, and distributing the property and accounts in your revocable living trust to you during your lifetime and to your beneficiaries after your death.
Cotrustee: If your trustee should die before you, review your trust documents to see if there are instructions on how to handle it if this person was serving as your cotrustee. Potentially, there may be a provision that permits you to continue serving as the only trustee, names a person to serve as co-trustee with you or describes how you will choose your new co-trustee.
Successor Trustee: If you are currently serving as the sole trustee of your revocable living trust and your successor trustee should die. You will not notice anything different. The difference will be noticed when you die, and there is no one named to act as trustee. Your beneficiaries will look to your trust agreement for guidance on how your vacancy should be filled. Potentially, your trust agreement may stipulate that a certain number of beneficiaries can appoint a new trustee without court involvement. Another possibility is the trust might require that the court approve any potential trustee. The wording in your trust document and your state’s laws will determine the outcome. By definition, a revocable living trust can be changed. You can change any of these provisions to adapt to any changes in your circumstances. A good time to review the trust documents is after a death, birth, or marriage.
Agent under a financial power of attorney: Your agent is someone acting on your behalf in financial matters. Your instructions limit your agent’s powers. They can sign a check or open a bank account for you, for example. If your agent would die before you and there is no named backup, then no one will have the authority to act in your place on financial matters. If you have the full capacity to act on your own behalf, this may not be a major concern. However, if you become incapacitated, your loved ones will need to go to court and have someone legally selected to take care of your financial matters. This process can be both stressful, public, and time-consuming. Planning ahead can save your family this additional stress should you become incapacitated and preserve your privacy, so others do not learn personal details about your medical condition and your family dynamics.
Agent under a medical power of attorney: Your agent acting as your medical power of attorney is only called into service in the event you cannot make healthcare decisions or communicate your medical wishes. For this reason, it may not seem like there is an immediate need to revise this document if your agent should die before you. However, it is impossible to look into the future and know when you will need your agent. If you do not have one, your loved ones must go to probate court to have a guardian appointed for you. The probate judge will look to state law to choose your agent, and this person may not have been the person you would have chosen. Unfortunately, the chosen person may not share your views about medical care or choose to follow them if they know them.
Guardian for a minor child: If you are the only living parent for your minor children or the other living parent is unfit to care for the children and your chosen guardian dies before you, the probate court will look to state law to determine who is next in line to care for your children. This person may not be the one you would have chosen, but the judge must make a decision based on whatever information they have, though it may be limited.
We hope that this post finds you in a life circumstance in which none of these scenarios have occurred, and you are reading it for guidance on how to prevent it from occurring. When you are ready, reach out to us. We are here to help you take the next step in estate planning, whether you are starting, completing, or updating your estate plans.