An Old Estate Plan Is Worse Than No Estate Plan

dan • March 5, 2023

Transcript

Hey, everyone. I'm Dan McKenzie, with The McKenzie Law Firm. We are an estate planning, estate administration, and small business counsel law firm in the Denver, Colorado area. And I thought I'd make a video about an issue that we're running into lately. It might just be coincidence, but I think it actually is something that is out there for a lot of people, which is that they've got old estate plans. They've got estate plans that are sometimes 20 or more years old. We've got one right now that came in that is actually more than 30 years old and it's still in effect. It is still the trust. That will that they did at that time as the will.

And so, you know, some of these documents, the will especially, they're in effect until you actually revoke them. So you can actually end up with some very old documents. But we get a lot of people in here who have kids, you know, who are in their 20s or even older. And the parents say,"Yeah, we did a will and it was, you know, appointed guardians for them when they were, you know, under five years old." So very old documents. And you might think, "Well, you know, documents. At one point they made sense and it probably isn't too far out of line with what I'd want anyway. And it's OK that they're a little bit old. At least I did it at one point. So I'll get around to getting it up to date at some point."

Out of date documents can cause big problems

But we're really running into some very big problems that are because the documents are old. And yeah, there's a few reasons for that, obviously. One is that circumstances change within families, right? There might be more members, there might be fewer members, people might have gotten married, people might have gotten divorced.

There can be births, there can be deaths. So just having a document that was designed for a totally different family structure obviously can have some bad effects if people are accidentally getting left out or getting too much or whatever else. But people really underestimate how often the law changes and especially around taxes. I mean, as you probably are aware, every time we get a new administration in here and the Presidency, the approach to taxes can change. Quite dramatically.

And then retirement accounts, that is usually people's first or second biggest asset depending on how much equity they have in their home. And so it is really important. And just in the last, oh, five years, less than that even, retirement accounts are taxed. But even beyond that, there's the estate tax. So we get a lot of people in here asking, well, I really want to avoid the estate tax. Well, right now the estate tax really doesn't affect.

Many people, right, you have to have, as I'm recording this video, almost 13 million bucks, Even having a state tax issue, married couples can combine so they get almost $26 million to give away before they have estate tax issue. Well, the problem with those older plans that I mentioned some going back 20 or 30 years is back then everyone had the state tax problem. Back in 2000, you could only give away $600,000 before you started having an estate tax problem. So obviously, you know even adjusting for inflation, a lot more people had problems at $600,000 than they do at $13 million.

Creating new problems by avoiding problems that no longer exist

So there's just a lot of planning done around avoiding estate tax back then, which is kind of irrelevant now. And if it was just irrelevant, that would be great. But people did things like putting stuff into trust for kids, or transferring assets into other people's names, or putting one spouse on one thing and one spouse on the other thing, doing all kinds of things that would have other consequences. But it was worth it back then.

Because, uh, the estate tax took such a bite. I think it was, you know, $600,000 and then everything above that was taxed at 55% or something like that. And they had state taxes too. It could really get oppressive, right? So it was worth it to go through some hassle, potentially have probates going on for spouses and all kinds of stuff that just doesn't make any sense anymore because we don't have that issue.

So we've really seen some stuff where it has really caused some problems and families that have step kids or again, just, you know, kids that are now 20 or 30 years older than they were when we did the plan last time. So if you have an old plan in place, do not assume that it actually is OK and it's just, you know, you'll get around to it when you get around to it, it might cause problems that you would not have if you had no plan at all because at least with no plan at all, you you'd be an intestate estate and you go by the state law as well. Those are not totally out of whack with who you know, where state estate taxes are and the other issues that I just discussed.

So in some circumstances I would tell people, "Jeez, just get rid of that plan." And we've seen that where people will actually come in and we'll actually just, you know, "Yes, we can get this plan done within maybe the next few weeks or so. In the meantime, let's revoke the plan that you currently have. So you have no plan and we're just going to run the risk and hope you know we're going to get through those next few weeks."

Yeah, there can be circumstances where no plan is better than your old plan. And so just be aware of that. And if you have a plan that is, you know, more than five years old, you should definitely look at it. If it's more than 10 years old, the chances that there are no updates needed is very minimal. And if we get much further than that, it probably is getting increasingly urgent that you really look at it and start coming up with a plan that makes more sense for today's laws, your family today, and the dynamics that you're dealing with now.

So hope that helps and hope that kind of lights a fire. If you've been kind of thinking, you know, I gotta get back to that and think about that again. So again, I'm Dan McKenzie of The McKenzie law firm. We're in Denver, Colorado. Our phone number is 303-578-2745. You can find us at themckenziefirm.com. If we could be helpful on helping you update a plan, we would be happy to have that conversation. So feel free to contact us. I hope this was helpful. Thanks.

What next?

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