California estate plans cannot be static documents that you create and leave alone for decades. Doing so could result in dire consequences for an estate, leaving its planning ineffective many years later. Laws and regulations regarding taxes, estates and inheritances change over the years. As such, estate planners always need to check and make sure that their plans are up-to-date.
One area that needs to be looked into if your estate plan hasn’t been reviewed in a long time relates to revocable successor trusts. For example, numerous individuals have the majority of their life savings ensconced within a 401(k) or Individual Retirement Account. Some of these individuals — who have revocable trusts — have made their trusts the beneficiary of these retirement plans. However, if your estate plan is old and hasn’t been updated in awhile, this could be a serious problem.
You need to include special language in your successor trust related to retirement planning. Successor trusts require specific legal statements that give it the ability to handle retirement accounts that they are benefiting from. Without this language, the trust will not be able to act appropriately with regard to the funds and massive tax consequences could be the end result.
California residents who have listed a revocable living trust to be the beneficiary of their individual retirement accounts or 401(k)s may want to check in with their estate planning lawyer to ensure that their estate planning is up-to-date and viable given current estate planning and estate-related tax laws. It’s much better to feel safe and secure with your estate plan than to worry about the potential for thousands of dollars in tax liabilities later on down the road.
Source: The Balance, “Checklist: Will Your Old Estate Plan Still Work Today?,” Julie Garber, accessed Oct. 20, 2017