I found the following article online at Forbes, originally published on March 19, 2023, and written by Martin Shenkman. It is an excellent article, but I can’t expect others to read it all in one sitting, so I’ve broken the article into three parts that I’ll post over the next few weeks. Mr. Shenkman writes:
Introduction
“Cleaning out your attic is one of those unpleasant projects that is typically delayed, deferred, and dodged as long as possible. Not much fun. The benefit to biting the clean-up bullet on your attic is similar conceptually to cleaning up your estate and related planning. In both your attic and estate planning clean-up projects you’ll stir up a bunch of dust, find things you had completely forgotten, discover some hidden gems. In all cases, you’ll get stuff organized, get rid of lots of stuff that has not served any useful purpose for a long time, and those are good results.
What does estate planning clean-up entail? You have to first identify every document related to your planning and get them organized. When you’re organized, then you have to ask: what purpose does this particular document, account or planning technique serve me now? Often you’ll find that what made sense years (or decades) ago, has little benefit today. In more extreme cases, some of the old stuff in your estate planning attic might actually create negative results that you want to address. While wine may improve with age, many estate planning documents just don’t.
How and Why to Organize
Many people have a random collection of estate planning documents and materials going back to pre-historic times. They’ve never organized anything and never discarded anything. The first step in the “get organized” process is to identify and safeguard original documents. You should be sure all originals are kept in a fireproof, waterproof and secure location that you and those you count on can access easily. A bank safe deposit box is secure, but it may be closed on death and difficult for the persons in charge of your estate to get access to. Perhaps a fire-rated safe in your home, with documents stored in fire retardant and waterproof pouches inside (to enhance the fire protection and provide water protection) may be the way to go. Find an approach that makes sense for you.
Once you’ve safeguarded the originals be sure you have a scanned copy of every original since you can then concentrate your efforts on organizing the scanned documents. Don’t be shy to ask your estate planner, wealth adviser or a professional organizer or personal inventory expert to help. If you have not been getting this done it may be smarter to pay someone to do this, then to leave it ignored. Some estate planners actually do this as part of their planning process. Just ask.
Organize all the documents in logical folders on your computer. Be sure it is both encrypted and backed-up securely in one or more ways.
Organize all estate planning documents by type: will, revocable trusts, irrevocable trusts, financial document, etc. Within each category have a separate folder for each irrevocable trust, for example. Within each irrevocable trust folder organize the trust document, funding documents, bank and brokerage firm records, gift tax returns, etc.
Be careful relying on generic document organizational tools as they are typically limited in scope and may be designed for an “average” person and you might not fit the bill. If standard stuff works, great! But if not be sure to create an organizational approach (or get help doing so) that makes sense for you.
Why It May Be Bad to Keep No Longer Useful Estate Planning “Stuff” In Place
There are lots of reasons to revisit old estate planning documents, techniques, and accounts. Here are a few general examples. We’ll explore lots of specifics in the discussions below.
- If you have a trust or entity (e.g., a limited liability company) that no longer serves a valuable purpose, you might be paying a CPA to prepare annual tax returns, annual filing fees, legal fees, etc., that are just a waste. Getting rid of these no longer useful structures might save significant annual costs and hassle.
- Your ex-brother-in-law who you hate is named as a trustee. Yes, when you organize you can then review documents, accounts, etc., and often the really bad stuff will stick out like a sore thumb. Overtime people who once were besties may now be worsties, and you need to get the documents or accounts updated to remove them and replace them with more appropriate people. This is one of the simplest to identify and most important steps to take. Cleaning out your estate planning attic will help you identify these.
- Tax laws change, like all the time! So what made sense from a tax planning perspective when you set up a document, plan or account, might no longer make sense today. You need to regularly review all your planning to see whether and how to modify it for tax law changes.
- Having a box of mostly superseded estate planning documents, e.g., every power of attorney you have signed over decades, can be confusing. If there is an emergency situation, one of your fiduciaries might find themselves going through all those documents, wasting precious time when action is advisable, trying to figure out which documents are relevant so that they can act. Getting rid of irrelevant documents will streamline the process and make it easier for someone to figure out what is relevant.
- Your circumstances might change. Frequently people have wills that are so old that they name guardians for their children who now have their own wills which name guardians for your grandchildren. Insurance coverage that was critical years ago, may no longer be needed. Or perhaps more coverage is needed now but for different reasons.
Look Before You Jump: Don’t Unravel Old Stuff Before Confirming It Won’t Create Worse Grief
Don’t be rash in dumping all documents, plans or accounts.
- You might have an old irrevocable trust that doesn’t really serve much current purpose, and may no longer provide any tax benefit, so perhaps unraveling it might at first blush make sense. But be careful. Terminating a lousy no longer useful trust might still be a mistake. If the assets of a trust are distributed out to a beneficiary and the trust terminated, what if the recipient is sued, or ends up in a nursing home. Those assets might be lost. It may be better to keep a lousy trust than to lose everything. So, take careful assessment of all potential consequences, especially negative ones, before taking any action.
- Don’t simply destroy superseded documents as there are situations where they may be relevant. For example, if a current will be overturned, the prior will may be reinstated as valid. So, it may be advisable to retain old original wills. Other older documents may be useful to show a pattern of your decisions. Letters and memorandum, even really old ones, may be useful to explain what was done and why. So, it may be preferable to organize currently relevant documents in one manner, and to save selected older documents but organized in a secondary manner and clearly labeled as such. To know what to save or not it might be worth meeting with your estate planning attorney and have them help you decide.
- If you (or the person you’re helping) have cognitive issues, caution should be exercised destroying any documents. If there are questions about the validity of new documents, perhaps because of the uncertainty over capacity, perhaps the old original documents should be retained.
Next week I’ll post Part Two, which addresses things such as a bypass trust, credit shelter, family trusts, and more. Stay tuned. Meanwhile, if it’s time for you to update your estate plan documents, please let me know; I’d be happy to help. Call me to schedule a meeting at 513-399-7526 or visit my website, www.davidlefton.com, to schedule a consultation directly.
Source: Forbes online 3/19/23 Written by Martin Shenkman