Estate Planning Checklist for 2024

Estate planning is more than writing a will; it’s a plan to manage the legacy you want to pass to your loved ones.  It documents your healthcare preferences, prepares for aging and incapacity and conveys your assets to those you choose.   The National Council on Aging (NCOA) Adviser’s article, “Estate Planning Guide and Checklist for 2024,” offers an overview of what to consider when planning your estate.  There is no perfect checklist as all estate plans should be tailored to the individuals using them, and so what you may want or need could vary, but it’s certainly a good idea of what to consider.

So, this blog will cover an estate planning checklist for 2024.

Understanding Estate Planning

Estate planning organizes your affairs to fulfill your wishes after you pass away. It encompasses decisions about money, property, medical care and care for your beneficiaries. The process includes creating essential documents like wills, trusts, powers of attorney, medical documents and more.  Estate planning provides peace of mind that your wishes are known and respected, benefiting your loved ones, so it is important to consider all of the key documents in the estate planning checklist.

Key Documents in Estate Planning

  • Wills: A legal document that outlines how to distribute assets after your death.
  • Trusts: Contracts that allow a third party, or trustee, to hold property and other assets on behalf of a beneficiary.  These are used for many purposes depending on what kind of trust, such as tax planning or probate avoidance.
  • Powers of Attorney: Legal documents that grant someone else the authority to make decisions on your behalf, such as if you want to delegate to someone or because of your own incapacity.
  • Medical Documents: Documents that state your wishes regarding medical treatment when you cannot communicate your choices.  These, depending on your state, including documents like medical powers of attorney, directive to physicians (living will), HIPAA authorization or similar documents.
  • Disposition of Remains. Some states, such as Texas, have a standalone estate planning document that indicates what your final disposition wishes are, such as cremation or burial, and who is in charge of seeing that through. Other states work these concerns into existing documents.
  • Guardianship for Children.  This isn’t applicable to everyone, but if you have minor children you can name a guardian to care for them should you pass away.  This is often one of the main reasons why young couples even consider estate planning.

Key Takeaways

  • Common Estate Planning Documents: Wills, trusts, financial power of attorney and medical documents are fundamental to estate plans.
  • Everyone Needs a Will, but Consider a Trust: Regardless of the size of your estate, a will is crucial to fulfill your wishes.  What you do beyond that is dependent on your goals and situation, but always consider a trust.  People tend to assume a trust is only for the rich, but trusts are very versatile and help with many client concerns in a way that wills cannot.
  • Review Your Estate Plan Regularly: The original article says update your estate plan regularly, I say review it.  If you don’t review it regularly, it is easy to  forget the details, which makes the estate plan difficult to properly implement and even harder to update.  2024 is an excellent year to review because the estate tax thresholds are changing in 2026, exposing more clients to estate taxes than in the past.

Conclusion

Consider estate planning to be a critical process to protect your assets, provide for beneficiaries and have peace of mind for the future. Follow the estate planning checklist to create your personalized estate plan.

Reference: NCOA Adviser (Aug 21, 2023): Estate Planning Guide and Checklist for 2024.

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Can I Decline an Inherited IRA?

The rules governing inherited Individual Retirement Accounts (IRAs) have changed over the years. They have become even more complex since the passage of the original SECURE Act with the passage of SECURE 2.0. The inheritor of an IRA may be required to empty the account and pay taxes on the resulting income within 10 years. In some situations, beneficiaries might choose to execute a Qualified Disclaimer and avoid inheriting the IRA, according to a recent article, “How to Opt Out of Inheriting an IRA” from Think Advisor.

Paying taxes on the distributions could put a beneficiary into a higher tax bracket. In some situations, beneficiaries may want to execute a Qualified Disclaimer and avoid inheriting both the account and the tax consequences associated with the inheritance.  Sometimes clients would rather pass wealth to another person or later generation, and income producing assets such as IRAs are attractive options for that.

Individuals who use a Qualified Disclaimer are treated as if they never received the property at all. Of course, you don’t enjoy the benefits of the inheritance but don’t receive the tax bill.  See here for more on how disclaimers work.  https://galligan-law.com/can-you-refuse-an-inheritance-disclaimer/

Suppose the decedent’s estate is large enough to trigger the federal estate tax. In that case, generation-skipping transfer tax issues may come into play, depending on whether there are any contingent beneficiaries.

An experienced estate planning attorney is needed to ensure that the disclaimer satisfies all requirements and is treated as a Qualified Disclaimer. It must be in writing, and it must be irrevocable. It also needs to align with any state law requirements.

The person who wishes to disclaim the IRA must provide the IRA custodian or the plan administrator with written notice within nine months after the latter of two events: the original account owner’s death or the date the disclaiming party turns 21 years old. The disclaiming person must also execute the disclaimer before receiving the inherited IRA or any of the benefits associated with the property.

Once the disclaimer is made, the inherited IRA must pass to the remaining beneficiaries without the disclaiming party’s involvement.

This is very important, but the disclaiming party cannot decide who will receive their interests, such as directing the inherited IRA to go to their child. Instead, the asset goes to the next beneficiary as if the disclaimer passed away before the account holder.  If the disclaiming party’s child is already named as a beneficiary, their interest will be received as intended by that child.

The person inheriting the account must execute the disclaimer before receiving any benefits from the account. Even electing to take distributions will prevent the disclaimer from being effective, even if the person has not received any funds.

In some cases, you may be able to disclaim a portion of the inherited IRA. However, these are specific cases requiring the experience of an estate planning attorney.

Reference: Think Advisor (Feb. 8, 2024) “How to Opt Out of Inheriting an IRA”

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What is a Lady Bird deed?

Enhanced life estate deeds, also called Lady Bird deeds, can be a great tool to transfer ownership of real property at death. Texas estate planning uses them heavily to convey real property without the need for probate.

Florida Today’s recent article entitled, “Real estate transfers: Is a ‘Lady Bird deed’ right for me?” explains that Lady Bird deeds are a type of life estate deed designed to automatically transfer property ownership upon the death of the original owner to another individual. However, they don’t require the original owner to give up use, control, or ownership of the property while alive.  The article is written for Florida law and differs a bit from our Texas experience, so I’ll focus on the Texas version of the Lady Bird deed.  Lady Bird deeds are also used in some other states, such as West Virginia, Michigan and Vermont.

The beneficial receiver of the property upon death doesn’t get any immediate rights or ownership interests in the property, although they do get a vested interest. The Lady Bird deed is rendered obsolete if the original owner sells or conveys the property in their lifetime. However, if the original owner passes away, the property subject to the Lady Bird deed is automatically conveyed to the beneficial recipient without needing to pass through probate.

With a traditional Life Estate deed, the original owner must give up control when adding a beneficial recipient. This means the original owner is prohibited from selling, conveying, or encumbering the property without explicit consent from the beneficial recipient. The original owner also can’t change or end a traditional Life Estate deed without consent from the beneficial recipient.

Conceptually, a Lady Bird deed basically adds a beneficiary designation to your real property.  Like life insurance pays to a beneficiary when you die, the property goes to the named beneficiary when you die.  It is often also a good alternative to immediately transferring real property to beneficiaries.  See here for more ideas as to why:  https://galligan-law.com/is-transferring-the-house-to-children-a-good-idea/

Here are the benefits of a Lady Bird deed:

  • Properties can be conveyed at death without having to pass through probate.
  • The original owner remains in full control of the property while they’re alive.
  • Using and recording the deed doesn’t impact the current owner’s homestead protection, exemptions or mortgage on the property.
  • Any property subject to a Lady Bird deed doesn’t violate Medicaid’s five-year look-back period, avoids Medicaid recovery and isn’t subject to gifting taxes or penalties, since the beneficial owner doesn’t immediately possess any ownership rights.
  • An agent under a sufficiently powered Power of Attorney can create one, which isn’t the case with transfer on death deeds.
  • Preserves step-up in basis compared to immediate gifting of real property

Here are the downsides of a Lady Bird deed:

  • Don’t necessarily help in irrevocable trust planning.
  • Married estate plans incorporating marital trust or bypass trust planning need immediate trust ownership as opposed to receiving property when both spouses pass.

A Lady Bird deed can be an effective tool to transfer property outside of probate. For example, we often created revocable living trust estate plans.  To avoid probate, the trust needs to become the owner or recipient of much of your property.  The easiest way for the residence to avoid probate is to use a Lady Bird Deed (taking advantage of all of the above benefits) naming the trust as the death beneficiary of the deed.  This way, the property goes to the trust upon death without probate, and the Trustee can sell it, distribute it to your beneficiaries, or whatever the trust directs.

In the case of a married couple, we often use a combined approach of creating a right of survivorship agreement between the spousal property owners reserving the enhanced life estate in the survivor.  This means the spouses own the property while both alive, the survivor receives the property automatically without probate and becomes the owner when one spouse dies, and the survivor gets the enhanced life estate to avoid probate at their death.

As a fun final fact, I have read multiple explanations for how the Lady Bird deed got its nickname.  The article references that President Lyndon B. Johnson used one to convey property to his wife, Lady Bird Johnson, and the technique became associated with her name.  I’ve also read that a law school professor used the Johnson family as his example when explaining enhanced life estate deeds, and thus they became associated with the family name. Regardless of the origin, the name is memorable for a frequently used, versatile estate planning tool.

Reference: Florida Today (June 9, 2023) “Real estate transfers: Is a ‘Lady Bird deed’ right for me?”

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