WHEN SHOULD YOU REVIEW & REVISE YOUR WILL OR REVOCABLE TRUST?

It is not unusual for clients to wait 20 years or longer before re-reading their wills or revocable trusts to determine if they still “work.” This occasionally creates expensive or frustrating problems.

Frequency of Review. I advise my clients to review their documents every five years.

Choice of Executors and Trustees. When children are small, most married couples name a relative (usually a sibling or parent) to serve as executor or trustee if both spouses are deceased. Flash forward 20 years. The children are now in their late 20s. All have graduated from college and live in the Portland area. Their relationships with each other are good. In these circumstances, there is no reason for the estate to be administered by an uncle, aunt or grandparent of the children. Instead, one or more of the children are the better choice. They will have the closest connection to their parents’ finances and should be motivated to swiftly move the post-death administration forward. Putting aside the example above, the person named as executor or trustee may no longer be suitable. For example, the nominee might have health issues, moved out of state, or lost contact with the parents.

Waiver of Bond. It is true that the grandparents, aunts and uncles can “step aside” and decline to serve as executors of a probate estate, which would allow the children to serve. However, there is a problem. A will usually waives the surety bond an executor must otherwise purchase. But the waiver may be limited to the individuals named as executors in the will. Since the children were presumably not named as alternate executors (since they were then very young), they will unnecessarily have to post bond if they serve as executor. See ORS 113.105. This isn’t the end of the world, but the annual premium might be $1,500 or more, and underwriters now perform a rigorous credit check on the executor. More important, having to fuss with a bond is directly contrary to the intent of most parents to ensure that administration of their estates will be easy without annoying hassles. This issue is moot for a revocable trust, since Oregon law [ORS 130.605] does not require trustees to post bond.

Trusts for Children. Parents are occasionally more protective of their children than they need to be. For example, when a child is in his teens, it might seem prudent to hold his inheritance in trust until age 40. But if the child is approaching 30 and doing well, a trust may be overkill. Also, it may be difficult to find a family member willing to serve as trustee. Unless the parents review their wills every five years or so, the children may be stuck with trusts that are unnecessary. This may necessitate the expense of a court proceeding (at the death of the surviving parent) to prematurely terminate the trusts.

Disposition of Wealth. If the wills or trusts allocate all wealth to the children in equal shares, the “dispositive scheme” may still work 20 years later. Or it may not. For example, if a child has borrowed significant amounts from a parent, the wills or trusts should clearly indicate whether the loans are subtracted from the borrower’s inheritance. If a child is troubled with substance abuse, mental illness, bad marriages, creditor problems or irresponsible spending habits, it may be prudent to allocate the child’s inheritance to a trust, rather than outright to him or her. At the same time, the parents should review their nominees for trustee. Is a sibling a suitable trustee, or would a third party be more likely to avoid family friction?

Coordination with IRAs, 401(k)s and Life Insurance. Whenever parents review their wills or trusts, they should also review the beneficiary designations of their IRAs, 401(k)s, life insurance and annuities. In general, the beneficiary designation trumps a will or trust. It is common for parents to name no contingent beneficiary (to take after the surviving spouse), or to name individuals (sometimes even former spouses) who are different than the beneficiaries under their wills or trusts.

In conclusion, I suspect most people decline to review their wills and trusts because of a perceived lack of urgency or a desire to avoid legal fees. In many cases, the related time or legal fees are dwarfed by a savings in time, money and emotional drain at a later date.

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