Estate Planning in 2022
Your estate planning needs to be updated every year because life happens, and laws change. This year the changes are coming fast and furious. Here are a few common changes that we all face.
Births
The birth of a new family member is a big deal. Suddenly there is a new baby to take care of and provide for. If it is your own child, life will never be the same. Estate planning is the safety net that takes care of your children when you cannot. Your Last Will and Testament will determine the potential Guardian if you die. Your Durable Financial Power of Attorney will determine the potential Guardian if you become very ill. Your Trust will pay all the bills and expenses of raising your child if you die, and if you get really sick.
If the new family member is a grandchild, your Trust can pay bills your children may not be able to pay for your grandchild. The most common ones I see are medical and dental bills, education, and counseling costs.
Weddings
If you got married, you need to update all you financial and healthcare documents, either to put your new spouse on there or to intentionally keep some control with your other loved ones. Perhaps you want your sister who is a doctor, to still be involved in your healthcare choices after you’re married?
If one of your children gets married, you may or may not completely trust their new spouse. Updating your trust will let you keep control of how much money they can access of what your child will inherit.
Divorce
You need to overhaul all your documents, especially your Will, Trust, Power of Attorney, and any financial or healthcare documents. Doing this is essential if you have minor children.
Deaths
Death is never easy, especially if your spouse dies. You will have to change your financial documents and your healthcare documents and give other people you trust the jobs you originally intended your spouse to do.
If someone who you were going to leave some assets dies, you have some choices to make. Do you want to update your documents to leave your assets to their beneficiaries or do you want to change your distributions entirely?
Serious Illness
The real test of a relationship is serious illness. If you get seriously ill, who will show up to help you? That is the person you can rely on. Often, you don’t know until you are ill. As you recover, your healthcare and financial documents must change to the person you can rely on.
Fights
People argue all the time. If the fight is serious enough people can get disinherited. People will no longer do the jobs they said they would do for you. You must change your healthcare and financial documents to the person you can rely on.
Financial Changes
When you lose a job, or retire, or move across the country, the people you have relied on will change. Even a big promotion at work or getting an inheritance will change the people you need to help you. After the initial joy wears off, having assets is a huge burden. The people who know enough to help you will change and the documents will need to change.
Getting Older
Children turn 18 and your documents need to change because they are legally adults. Last Wills and Trusts need to change because your children have rights as an adult. Do you want to give your 18 year old access to large sums of money? Probably not. Your Last and Testament and Trust needs to change to protect your children from themselves.
People Retire
Your Last Will and Testament and Trust need to change because your financial situation has dramatically changed when you retire. Can you live off your investments? The documents need to say one thing if you can, and a completely different thing if you cannot. You are the only one who can protect you.
Laws Change
Many laws change every year and 2021 was no exception. For an everyday person’s estate planning, there are four categories of law changes that are very important: HIPAA, Annual exclusion increases, and RMDs.
HIPAA
HIPAA is an acronym for Health Insurance Portability and Accountability Act. It means more than information control. It is about life and death. Every estate planning document has HIPAA language. During COVID your ability to make decisions for yourself or a loved one may be gone. Your healthcare and financial documents must be reviewed! If you are very ill, the hospital can determine life and death. The family may be excluded from these choices. Know your rights ahead of time.
Annual Exclusion Increases
The law continues to increase the annual exclusion rates. The annual gift tax exclusion is $16,000 per person, per year. This means, you can give up to $16,000 per year to anyone without reducing your lifetime exclusion or paying gift tax. If you die in 2022, the lifetime exclusion is $12,060,000. This means there is no estate tax on estates of less than $12,060,000. The average person doesn’t worry about estate tax, just gift tax.
RMDs
RMDs stands for required minimum distributions from retirement accounts, 401(k)s pensions, IRAs, and other qualified accounts. Because new life expectancy tables have been published, the RMDs have changed as of January 1, 2022.
In Conclusion
This is just a list of the highlights of the changes in the laws and there are many more that could affect your estate planning. I recommend you meet with your financial adviser and estate planning attorney to discuss how to update your documents.