When is the last time you reviewed your estate plan? Alternatively, are you are part of the reported 60% of Americans that do not have an estate plan in place? Perhaps since you last thought about estate planning you have had children, or they have left the nest. You could also have substantially increased your net worth, be closer to retirement, or you may have inherited money from your parents. Did you purchase out of state recreational property or are you looking to relocate outside of Minnesota? Likely you use social media and have become more dependent on digital information. Any one of these changes could impact your estate planning goals.
Just as you and your family’s circumstances have changed over the years, so, too have the federal and state laws that affect your estate planning. Recent legislative changes address estate tax exemptions, equalization of estates, electronic data ownership, health care directives and power of attorney requirements. These changes could impact your estate and its goals.
Beginning with the 2018 tax year, the federal government has increased the individual estate tax exemption to $11.2 MM and confirmed its portability. This means that if one spouse dies and has not made full use of his or her federal estate tax exemption, the surviving spouse can make an election to pick up the unused exemption and add it to their own exemption. The result for married couples is a combined exemption of $22.4 MM. If your estate plan predates these estate tax changes, chances are it has language planning for the old federal exemption. With the new federal estate tax exemption, many people no longer need to plan for federal estate tax. Failing to update the outdated language in your estate plan can result in assets being held in a trust for the surviving spouse rather than going to them outright. This means you or your spouse (whoever survives) will have less control over your assets.
As of 2017, Minnesota has increased its state exemption for 2018 to $2.4 MM (which will increase further to $3 MM in 2020). Unlike the federal government however, Minnesota did not combine the use of the personal exemption for married couples, so it remains applicable only to each individual. Fortunately, there is a simple fix: change the funding formulas to consider the state exemption first. Such a change can avoid a myriad of unintended consequences.
Equalization of Estates
In many families one spouse has accumulated more retirement assets than the other. The result is that one spouses owns assets, including death benefits from insurance, which exceed the Minnesota exemption while the other spouse does not possess sufficient assets to take advantage of their full state exemption. With careful planning, a married couple can effectively combine their Minnesota state exemptions and shelter $4.8 MM in 2018 from all estate tax. Without such planning, many estates will avoid federal estate tax but will fall prey to Minnesota estate tax.
Most estate plans in the past did not refer to electronic data. With our lives having become more and more digitized a significant question is brought to light: who in fact owns the data and who can have access to it? Without specific authorization in your will, trust and/or power of attorney, your family will not have access to this information. From passwords which provide access to the likes of financial, phone and texting records to information stored in applications such as Facebook, Snapchat or Instagram, only someone that is specifically authorized in your estate plan documents will have access. And while access to a social media account may seem irrelevant or trivial, data access authorization is critical for making the administration of your finances and estate seamless in the event of your death or incapacity.
Health Care Directives
Minnesota has updated the basic criteria for Health Care Directives. According to Minnesota state law, you may appoint a health care agent to make decisions about medical care on your behalf in the event you are unable to express your wishes due to an injury or illness. To this end, the updated Health Care Directive permits your designated health care agent to access and use your medical information under the Health Insurance Portability and Accounting Act (HIPAA). Older Health Care Directives may not include the proper language to allow your health care agent access to confidential information protected by HIPAA. In practice, this can mean that even a properly designated health care agent could be denied access to your medical records, thereby depriving them of an important resource for making informed decisions about your medical care. Therefore, your Health Care Directives must be written properly in order to meet the new standards for Health Care Directives in Minnesota and ensure that you have deliberately and comprehensively addressed the appointment of a health care agent.
Statutory Power of Attorney
Minnesota in 2017 updated the requirements for the Statutory Power of Attorney. While old formats can still be effective they are technically no longer compliant. Also note that although the form was updated in 2017, there are limitations with it: you cannot provide electronic access to information, full gifting or end of life planning options. Rather than fitting your end of life plan into the limitations of the form, we suggest that you review your needs and customize your power of attorney to fit your personal goals.
Sanford, Pierson, Thone & Strean PLC is committed to being your partner in planning for your life, retirement and family. Changes in the federal and state legislation have made it a great time to create, review or update your estate plan. Our office is ready to assist you in the process to assure you and yours are protected and provided for under the current laws.