Here is the final part of the series on “Clean Out Your Estate Planning Attic,” from Forbes, published March 19, 2023, and written by Martin Shenkman. The content in this last part really digs in on what you should review and update. It looks like a lot, but you can skim it based on your situation and if it applies to you. For example, have some joint accounts with a family member? Should you? Do any beneficiary designations need to be updated, for example, a former spouse or a niece from whom you are now estranged? Any legal documents that are out-of-date should be updated.
Shell Entity No Longer Needed
“This is similar conceptually to the previous topic of an old trust that was never used or was set up but then emptied of assets, but with one important twist (formal state and tax filings). You might have operated a small business or home-based business and had an S corporation, limited partnership or limited liability company (LLC) formed, perhaps by your business attorney, through which you operated the business. But you closed shop a decade ago but didn’t bother to formally terminate the entity which requires a filing with the Secretary of State of the state in which the entity was formed (in contrast there is no state level filing for a general partnership, perhaps though a county clerk filing was made). You might have invested in real estate and had your real estate attorney set up several LLCs, one for each property you bought. You’ve sold all the properties but there was one LLC set up, but it never owned any property as the deal you were considering fell through. So, you might have one or more entities that should have been formally terminated that weren’t. For these you should have a corporate or business attorney formally terminate them. That might require filing a certificate of termination or other documents with the Secretary of State. A prerequisite to that might be obtaining a tax clearance from the state confirming that all taxes have been paid. Thus, you may need a CPA to file a final income tax return to be sure that matters are concluded with the IRS and state tax authorities. With entities you may have the added issue that if you operated a business formally terminating it may have important implications to liability that may have pertained to the business (e.g., a hazardous waste issue on real estate your LLC owned). So, be sure to get professional guidance on these. Cleaning up old entities not only can simplify matters, but it might even have important legal consequences.
Joint, POD or TOD, Account
You were single into your 30’s or 40’s so you had bank accounts set up with your sister as a joint account owner. You thought that would be best so that if you ever got sick, she could legally help out, or if you died, she would inherit what you had. Apart from the fact that was probably not a wise move even then, now you are married, or your relationship with your sister is not so hottsie-tottsie, it may be long past time to get rid of these account titles. But you forgot about those old accounts. Or perhaps before you hired an estate planner you thought having every bank and brokerage account held in a Pay on Death (POD) or Transfer on Death (TOD) to a niece or nephew you named avoided the evils of probate. Apart from the fact that was probably a lousy idea from the get-go, it is time to clean these up. Frequently, people forget about how they set up accounts and the impact on their estate plan. Cleaning up these accounts can avoid a raft of issues. For example, if you set up an account as a joint account so the named person can help you if you become ill, that might give them the right to withdraw all the assets from the account. Think about it! If you have a fight with your kid-sister and she gets angry enough she might just take a revenge vacation using your savings account! In most cases, there are better and safer ways to handle these accounts and accomplishing your goals (like using a power of attorney to your sister instead). Cleaning up your estate planning attic is not only about legal documents but about being certain your financial assets are properly structured too.
Old Beneficiary Designation
Beneficiary designations raise similar issues to improper account titles. An example can illustrate. You were married to Bad Bob and after an acrimonious divorce you just, as most people, could not face another legal document or formality. So, you neglected to change the beneficiary on your pension plan or insurance policy which continued to list Bad Bob. You die. Bad Bob will get the dough unless state law provides that in the event of a divorce an ex-spouse is automatically removed. How often to people forget who they have listed as beneficiaries on every asset that has a beneficiary designation? While your financial adviser may review beneficiary designations on accounts you have with them, if you have not informed them of some of your assets (another common mistake) they cannot address those with you. So, cleaning up your estate planning attic must include reviewing every beneficiary designation form.
Outdated Letters of Instruction
It is important for many people, especially those with specific wishes, to write letters of instruction to inform agents, trustees, executors and others of your wishes. For example, if you have young children and would hope that they could be raised with a particular religious or cultural background it is often helpful, even vital, to explain some of the nuances of that in a letter of instruction. But as times change some of your personal instructions and wishes will change too. In some cases it might be best to destroy old letters of instructions mixed into your estate planning documents and only leave the most current personal letter. You want to avoid confusion, especially if the instructions from the various letters are different. Also, you want to avoid the risk of loved ones finding an old letter of instruction rather than the newer one.
Outdated Estate Planning Memoranda
Sometimes these can be really useful, other times sources of confusion. When you undertake estate and financial planning, or a new tax plan, your professional advisers often will send you letters and/or memorandum, checklists and other items discussing some of what you plan, options, decisions made and even how to administer and monitor the plan once implemented. These materials can be really helpful when new advisers are hired, or a loved one steps in to help if you fall ill. In some cases, if the planning were abandoned or superseded it could be more confusing then helpful to leave all of these old letters and memorandum. In some cases, all of this information is lost over time and only key documents retained. Try to identify, organize (e.g., chronologically) all of such records. Perhaps meet with your advisers and have them cull out documents that will be more confusing then helpful because of age. All of this can help set up a roadmap that can be really valuable to you when you review your planning, new advisers, and heirs and fiduciaries. Cleaning up your estate planning attic should be done with the perspective of laying out a table that is easy for others to quickly understand what was done and what they might need to do help.
Conclusion
Few people take the time to clean up and organize their estate planning attic. But creating an organized and relevant “library” of documents, terminating and cleaning up old accounts, trusts and entities, and so on, can provide tax savings, cost savings, simplify planning and create a roadmap for administering a plan and for those who may have to help you in the future.”
This three-part series did a great job covering many estate planning topics. Did any of them hit home with you? If so, give me a call. I’d be honored to help you update your estate plan to match your current situation and needs. You can reach me 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