Before You Put Your Tax Records Away, Focus on Your Estate Plan

The government imposes an annual deadline for collecting a year’s worth of income and asset information and sharing much of it with the government.  You can’t put that off.  Estate planning is easier to put off – you don’t know what your real deadline is, and you’d like to think it is far in the future.

But the tax return preparation process (and the collection of information to complete that process) can be a useful starting point for estate planning.  Or an opportunity to confirm that you are following any estate plan that you have already put in place.

Over the first few months of the year you collected your year-end W-2s, 1099s from financial institutions, perhaps some K-1s from partnerships and other entities, and health insurance and medical cost information.   You collected real estate and personal property tax statements to support any state and local tax deduction.

Before you box up and store away that information, however, consider spending a few minutes looking at it through an estate planning lens.

  • If you don’t have an estate plan, this information is a useful starting point for collecting the asset information that is one of the first steps in the estate planning process.
  • In the case of 401(k) statements and insurance company statements, whether part of an integrated estate planning process or not, estate planning is essentially built into these accounts or policies – through a beneficiary designation. Who is the designated beneficiary for each?  Have you double checked?  Are they still appropriate?
  • Property tax bills will identify the property owner, and there may be estate planning built in to these assets if titled in joint tenancy or tenancy by the entirety. Again, are these record owners appropriate (and consistent with any existing estate plan)?  For properties in only one name, has a “transfer on death” designation been made?
  • If you set up a trust as part of your estate plan, do all of the financial institution and real estate tax statements properly reflect the name of the trust? If they don’t, did you intend to keep those out of the trust?  Unless there is a transfer on death designation (probably noted on the financial institution statements), these assets would go through the probate process when you die.
  • Take a particularly close look at K-1s for “pass through entities” if you have a trust. Do these identify the trust as the entity owner?  If not, is that what was intended?
  • If you are a business owner, as you look at the business tax return and the list of K-1 recipients, consider the business succession implications if you or one or more of the owners were to pass away or become incapacitated.
  • If you have a General Durable Power of Attorney as part of your estate plan, have you taken the proper steps with financial institutions to streamline your designated agent taking action with these accounts? Take a careful look at any institutions where new accounts were set up in the last year.
  • Your health insurance and medical expense records should serve as a reminder of the need to have in place (and update as needed) a “Living Will” Declaration (addressing your final medical wishes), a HIPAA Authorization (to enable sharing of medical information) and a Durable Power of Attorney for Health Care Decisions (to enable your agent to make health care decisions for you).

It is easy to find reasons to put off estate planning – like the need to gather information.   Let the tax information collection effort jump start your estate planning.  And then tell yourself that by next tax season you will have your estate plan in place.

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