The Ins and Outs of Changing an Estate Plan: Kathryn M. Murphy
Some years ago you (and perhaps your spouse or partner) met with an attorney, spent considerable time, emotional energy, and money, and created an estate plan. Now you are considering some changes to that plan, whether to your will, trust, durable power of attorney, advance health care directive, or other part of your plan. You want to maintain your investment in the existing plan. At the same time, you want the changes to the plan to be legally effective and not to impair what you’ve already accomplished. What are your options? This general discussion will walk through some considerations. I have assumed you have a revocable trust and a pour-over will. If you only have a will, ignore the portions about trusts.
The Mechanics of Changing Your Plan First, let’s examine the mechanics of changing an estate plan before considering which you should use. Over time you may wish to add or remove beneficiaries, trustees, executors, attorneys-in-fact or agents for health care. To put those changes into effect, the document involved needs to be amended or replaced in a legally effective way. Otherwise, an informal attempt at change may result in your investment in this estate plan being wasted.
Changes to your trust require at least a separate document acknowledged in the presence of a notary and written consistent with the basic structure of your trust. This is an amendment to the original trust document. When the trust is administered, both the original trust and all the amendment documents need to be read together as if they were one document. When a separate amendment to the trust is not recommended (see below) it is necessary to restate the complete trust, essentially amending and replacing the entire former document. A restated trust supercedes the original trust and it is not necessary to refer to the original trust after the restatement. Changes to your will require a short writing executed before witnesses in the same manner as a will. This document is called a “codicil” rather than an “amendment” for historical reasons. At your death, the original will and all of the codicils are read together as one document. Like your trust, there may be reasons why it is better to replace an existing will with a new will that revokes the former document, rather than using the original will and a codicil. There are similar requirements for the power-of-attorney and advance health care directive, where an amendment needs to be written and notarized. It is generally not cost effective to amend powers-of-attorney and advance health care directives because the cost of a new document is generally less than or equal to the cost of an amendment.
It is critical that you preserve your estate plan by following these formalities in making any changes. Simply writing changes onto your original documents, whether or not they are signed by you will not be effective, will lead to an expensive confusion, and in some cases could invalidate the plan you originally stated in the document as well.
Where to Get Assistance in Making Your Changes Next, let’s consider who you will work with to make the changes you intend. You could return to the attorney who prepared the original plan. If that person is still in practice and you liked the working relationship, this option will generally be the most time and cost effective.
You may decide to employ a new attorney. Perhaps you’ve moved, your former attorney is unavailable, or you just want a fresh view. Be prepared that a new attorney may hesitate to become responsible for drafting choices your first attorney made, particularly if time has gone by since your original documents were prepared. The new attorney may insist on starting with fresh documents and a restatement of your trust, if you have one. Again, if some years have elapsed since the estate plan was created, you may suffer “sticker shock” when you are told the current price for the new estate planning work. Your new documents may be longer and seem more complicated than your earlier documents. For the same reason, be sure you know the cost of the work to change your plan before becoming legally obligated to pay it, and whether it will be a fixed fee, based on hourly charges (with an estimate of the total), or a mixed fee.
There are some options for estate planning that are very low cost. There are books, pre-printed forms and computer software written for legal consumers to assist them to prepare their own documents without an attorney. Your former attorney may have given you a computer disc with copies of your estate planning documents on it which could be edited. If you feel any of these approaches meet your needs, the cost will certainly be less than employing an attorney for the changes. For instance, if the California statutory will is sufficient for your needs, it is simple to obtain and prepare. You may want to start with the California State Bar’s a pamphlet on wills for consumers. You may obtain a copy for a small charge at their office in San Francisco. If you elect to prepare your own documents, keep in mind that your work may not be tested – your drafting decisions not reviewed for legal effectiveness – until you are either incapacitated or dead. You may not have a second chance to have your documents correctly prepared consistent with your intentions at the time you made the changes. You probably do not want the estate you are leaving to those you care about diminished by unnecessary legal fees.
There are some organizations and attorneys who offer estate planning at remarkably low rates. You want to consider the knowledge and experience of the attorney offering such services far below the fee quoted by another attorney. You should also be concerned whether the legal work is being offered at a bargain price because the attorney or organization will try to sell you another product, investment or service (commonly annuities) with a better profit margin, whether or not you really need what they are selling.
So how do you find a new estate planning attorney and become informed? You may have friends or family from whom you are comfortable asking for a referral to the person they used. Be sure to ask what they most liked and disliked about working with the attorney.
The county bar association of most counties has a lawyer referral panel. There are usually a general panel and special panels. The special panel attorneys must make some showing of experience in the subject matter before being listed on the special panel. There is usually a special panel for matters of estate planning, wills, trusts and probate.
The yellow pages now have a section following the listings for attorneys where attorneys list themselves by specialty. Look under estate planning or wills. While many attorneys may “specialize” in estate and trust matters, there are also attorneys who are Certified Specialists, Estate Planning, Probate & Trust Law, per The State Bar of California Board of Legal Specialization. Only attorneys who have met certain exam/education/experience/peer review requirements set by the State Bar may use this title.
If you feel your estate may involve serious tax consequences, you may wish to consult a Certified Tax Specialist (also per The State Bar of California Board of Legal Specialization). However, many experienced tax attorneys may simply get an advanced degree in taxation and not pursue certification. A tax degree would normally be one of the following designations: L.L.M., M.S.-Tax, or M.B.A.-Tax.
If you are planning for your possible disability, you may wish to consult a lawyer specializing in a new field called “Elder Law.” These attorneys make a special effort to become familiar with the normal estate planning considerations, as well as public benefits law. They normally have experience and/or education in effectively listening to an elderly or disabled person who may have trouble communicating their wishes and may be subject to the influence of other family members.
If you use an accountant, he or she may be able to refer you to a competent attorney for estate planning. Many certified public accountants (C.P.A.’s) are qualified to advise you on the tax consequences of your current estate plan and to suggest alternative plans. However, accountants are not qualified to prepare a trust, will or similar document.
If you own real property in a state other than where you live, or own a business in another state, you are likely to need advice from two attorneys: an attorney licensed where you live and an attorney licensed where that other property/business is located. In some cases you can find a dual-state licensed attorney.
Reasons for Changing Your Documents Life is change. You may change: the value of your property; your intentions with respect to those you care about, your marital status and your status as a parent or grandparent, the circumstances of your family, friends and favored charities; the circumstances of the persons you have named as your executor, trustee, attorney-in-fact or health care agent; and the states you live in or own real property in.
The law may change: state and especially federal estate tax or gift tax law, and state law regarding wills, trusts, estates, powers of attorney and health care directives. Our last major change to the federal estate tax law was in 2001, and the changes made in 2001 are phasing in over time until 2011. We expect another major change will be voted on by Congress and signed by the president at least by the end of 2009, if not sooner. The California Trust Law went through a major re-write in 1990, and there have been many statutory changes since that time, including a new Prudent Investor Act in 1995, a notice requirement when a trust becomes irrevocable or trustees change (last changed in 2000), the accounting rules for trusts (especially 1997, 1999, 2004), notice to beneficiaries regarding certain transactions (2004), public records regarding trusts (2004), and creditor rights (1991). Finally, every year there are state and federal regulations, as well as court decisions, which change how the laws of wills, trusts and taxes are applied.
If you own property in multiple states, or live in one state in rented property and own property in another, you have further complexity. Your estate plan needs to be prepared in accordance with the law of the state where you live (where you have your “domicile”). The rights of an owner in real property are governed by the state where the property lies. Likewise for a business in another state. For instance, if you hold your property in trust, your successor trustee has to rely on the state law where the trust real estate is located to enforce the trust, sell, refinance or distribute the property. Your will may need to be probated in that state whether or not it is formally admitted to probate in California. Your estate plan may be perfectly suitable to your personal circumstances and your domicile state law. It may be the law where your real estate lies that has changed, in a manner different than your domicile state. Many states have adopted all or portions of the Uniform Probate Code and use this as the basis for their trust law. California is not a Uniform Probate Code state. California and nine states recognize community property for married persons. The other states take different approaches to marital property. It goes without saying that today the rights of same-sex partners vary considerably state-to-state and only California recognizes community property for Registered Domestic Partners. Many states, including California, repealed their separate inheritance tax laws and integrated their right to collect tax with the federal State Death Tax Credit many years ago. The 2001 federal law change phased out the State Death Tax Credit. Now those “integrated states” collect no tax when a wealthier resident/property owner dies. Some of those states will likely reconsider having a separate inheritance tax, although there is a political cost to such legislation.
But You Want to Keep It Simple! No one wants to spend money on legal work that is not needed. Let’s consider several common changes and the kind of options you have between a simple amendment to your trust and codicil to your will, versus a restatement of your trust and a new will:
Changes to Trustees and Executors This is the simplest of changes and the one most likely to permit use of an amendment and codicil. Keep in mind that if your will is filed with the court for formal probate after your death, the person you named originally will have to receive notice of the probate, as well as the person now named to serve as executor under the codicil to your original will.
Adding a Beneficiary for a Fixed Gift of Money or Property If your will or trust is already set up to make distributions of specific gifts to people (e.g. “I leave $1,000 to my nephew, Steven Smith”), adding another small gift can often be done by amendment to your trust or, if you only have a will, codicil to your will. As the gift becomes larger relative to the size of your estate, adding this gift may significantly change what the other beneficiaries will receive. See the discussion below about reducing a gift.
Adding a Beneficiary for a Share of the Residue/Remainder of Your Estate Changing the percentage interest in the residue or reminder of your estate may be more or less complicated, depending how your original will or trust was drafted. If the new beneficiary will have a continuing trust (e.g. a trust for a new child or grandchild that will last into young adulthood), adding this share may require adding substantial terms affecting the structure of your trust. Adding to the number of shares at your death means that the original beneficiaries will now get less. Hence, you are both adding a beneficiary and reducing a gift. This is why adding a beneficiary for a share of the residue or remainder is more likely to require a new will and a restatement of your trust, than a codicil to the will and simple amendment to the trust.
Adding a new Spouse or Registered Domestic Partner This is a major change. A surviving spouse or registered domestic partner omitted from your old estate plan may have standing to challenge that plan at your death. There are important estate tax planning opportunities for married couples (not registered domestic partners) which need to be addressed in your will and trust by a different structure than that appropriate for a single person. You may or may not want to have a joint trust with your spouse or partner, but you do need a new will and at least a restatement of your trust.
Removing a Beneficiary or Reducing a Gift or Share in the Estate If your original trust leaves a specific gift (e.g. $1,000) to an individual on the condition that the person survives you, and that person has died, it is not necessary to change your documents. The gift is not made at your death because the conditions are not met. If the person has died, is a blood relative, and under the wording of the gift, it would pass to that person’s children or grandchildren, you could amend the trust or execute a codicil to make clear this gift is not to be made. On the other hand, if the beneficiary of the gift is still living at your death, and you only amend the trust or execute a codicil to take that beneficiary out of your estate plan, the beneficiary will still get notice of that change at your death. That omitted beneficiary would not get notice at your death if you executed a completely new will and trust restatement, unless the omitted beneficiary were also a relative close enough to you to be considered one of your “heirs at law” (the persons who inherit your probate estate if you die without a will). Even if the person is an heir, the person would not have notice of what he or she “lost” by the change because they would not have a right to see the older estate planning documents.
In most cases your estate planning documents will be kept private and confidential until your death. However, many people keep their documents or copies of them at home. As the person ages/becomes dependent on others for care or moves into alternative senior housing, other people may have access to these documents. You may want to consider how you will respond if confronted by an omitted beneficiary who learns of the change while you are living.
Likewise, at your death the omitted or reduced beneficiary may react to this change. You may want to consider the emotional cost to this person, and the emotional and even legal cost to those you still wish to benefit by this planning change. Omitted or reduced beneficiaries may spend years accusing the other beneficiaries of influencing your decision, or simply complaining that it isn’t “fair.” The omitted/reduced beneficiary may legally contest your will or trust, especially if your physical/mental health was changing between the time of the original document and the amendment to the trust or codicil to the will. While you have every right to leave your estate to those whom you choose (with certain exceptions for the rights of a surviving spouse or registered domestic partner), you probably don’t want your decision to cause undue stress or undue legal expenses to those you choose to benefit.
For these reasons, a completely new will and restated trust, followed by actual destruction of the older documents is preferred where beneficiaries under the former documents are removed or their gifts/share in the estate reduced. As mentioned earlier, adding a new remainder beneficiary or beneficiary of a large specific gift, may have the indirect effect of reducing the share of the original remainder beneficiaries and needs to be considered in the same way. Similarly, if you previously left a beneficiary specific property (e.g. your residence or your cabin in the mountains), you have since sold that property and this beneficiary is not included in the gifts from what remains in your estate, you need to consider a new will and trust restatement that either includes this beneficiary in some other gift or leave this beneficiary out altogether.
The Long Way is Sometimes the Short Way This brief discussion of estate planning changes cannot address every issue. There are special circumstances that may require advice different than the general statements made above. However, you can see from this discussion that what appears to be an obvious and simple decision, electing to have just a few legal pages prepared at the lowest cost versus what seems and costs like an entirely new estate plan, may not have an obvious answer. Sometimes the longer, more expensive solution, makes for an easier and less costly administration of your estate at your death, and may even affect you and your estate while you live.