Ensuring your will or trust is up-to-date

Whether your estate planning documents may need to be updated depends, at least in part, on when the plan was created.

If it was a number of years ago, some documents may no longer be current. Your family and personal situation may have changed since then. Tax laws have changed a lot over the years, as well.

Even if your estate planning documents are still valid, they may no longer work the way you intended. If your will or trust predates these five key “freshness dates,” it may be time to visit your attorney for a review.

The SECURE Act eliminated the opportunity to “stretch” distributions from IRAs and defined contribution plans over the lifetime of non-spouse beneficiaries. Instead, a 10-year payout rule will apply in most cases. If you named a trust as beneficiary of an IRA or 401(k) plan prior to the SECURE Act, that strategy may no longer work as anticipated. Required distributions will likely need to be made sooner, and in greater amounts, compared to prior law. Trust terms may require that income be distributed out to the beneficiary sooner than originally planned. It could be wise to meet with your tax advisor to consider alternative approaches.

The Tax Cut and Jobs Act of 2017 doubled the federal “basic exclusion.” With inflation adjustments, the exclusion is $12,920,000 per person for 2023. After 2025, the basic exclusion will revert to its pre-2018 level. In other words, it will be cut in half (although inflation adjustments will still apply).

Many existing estate plans for married couples were designed back when the exclusion was much smaller—say $2 million, $1 million, or even $600,000. These older plans often call for automatic, maximum funding of a credit shelter trust at the first spouse’s death. This may now result in “over-funding” the credit shelter trust at the first spouse’s death, which could result in less-than-optimal use of the deceased spouse’s exclusion and sacrifice the opportunity for a “step up” in cost basis at the surviving spouse’s death.

If you are not likely to owe federal estate taxes, your attorney may recommend revising your plan to achieve better income tax results for your beneficiaries. At the same time, it’s important to consider the scheduled reduction in the applicable exclusion in 2026. Some people who don’t have estate tax exposure today may need to plan for potential estate taxes after 2025.

The American Taxpayer Relief Act of 2012 (ATRA) became law on January 2, 2013. It made the “portability election” a regular feature of federal estate tax planning. This election lets an executor transfer a deceased spouse’s unused federal estate tax exclusion to a surviving spouse—in effect allowing the surviving spouse to “stack up” the deceased spouse’s exclusion on top of his or her own. Some states also allow a portability election for state estate tax purposes.

Taking advantage of the portability election does not require advanced planning; it is exercised following the death of the first spouse to pass away. But if your estate plan was created before this date, it may have been designed without considering this potentially valuable election. If your estate is subject to federal or state estate taxes, it’s important to discuss portability advantages and disadvantages with your attorney to help determine whether it or a credit shelter trust is better for your situation.

This is the date the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRA 2010) was enacted.

If your estate plan was created before December 17, 2010, your documents may contain federal tax planning provisions that are no longer needed. Those older documents were designed for a much lower exclusion—but the exclusion today is much higher ($12,920,000 per person in 2023). Your attorney might be able to recommend an alternative plan now.

In other situations, however, your estate plan may need to become more complex. For example, if you live in one of the 16 states plus Washington, D.C. that have a separate estate or inheritance tax, your attorney might recommend new strategies to deal with state estate taxes, which often begin at a much lower threshold.

This date is important if you live in a state that imposes its own state-level estate or inheritance tax.

Before 2001, there was a federal credit for state death taxes (the size of the credit varied with the size of the estate). Back then, there was not much incentive to make plans for avoiding state death taxes because those taxes were fully offset by the federal credit.

The Economic Growth and Tax Relief Act of 2001 (EGTRA) phased out the credit between 2002 and 2004. As a result, since January 1, 2005, state estate or inheritance taxes apply on top of any federal estate tax. Today, a number of states impose their own state estate tax, and many states have an inheritance tax.

If you live in a state that imposes its own estate tax and your will or revocable trust was executed before 2005, visit your attorney to start planning for state taxes if they’re a concern for you.

This date relates to the required compliance date of the privacy regulations under the Health Insurance Portability and Accountability Act (HIPAA).

The HIPAA privacy rule imposed strict guidelines on the disclosure of “protected health information” without the patient’s explicit permission.

While these privacy protections are a good thing, they can also become problematic. Your executor, trustee, or agent (under a durable power of attorney) may need to deal with your employer, insurer, or medical providers, such as doctors, clinics, and hospitals. An authorized person must have a written document executed by you with very specific language mandated by HIPAA.

If your will, revocable trust, durable power of attorney, or health care power of attorney was executed before April 14, 2003, your executor, trustee, or agent may not be able to work effectively with your medical providers and insurers. To fix this problem, have an attorney update your documents to include the language required by HIPAA.

When reviewing your estate planning documents, tax law changes aren’t the only important factor. Significant changes in your life or among your beneficiaries should be reflected in your estate plan.

Perhaps there have been births, deaths, marriages, or divorces in your family. The amount and composition of your net worth may have changed materially. You may have different ideas today about how to distribute assets. Also, consider whether you want to make changes to the persons you previously designated as executors, successor trustees, or agents.

• Review your estate planning documents to determine when each was created.
• Talk to your attorney about each of your estate planning documents.

Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.