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Estate Planning

Q&A: Make sure your estate planning documents can be found

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Dear Liz: Your response about finding trust documents was very helpful. It reinforces that people need to provide copies to their loved ones in case they become incapacitated and the originals are lost or can’t be found.

People seem to complete these documents and assume they will never get dementia or become physically unable to care for themselves. Assume the best, prepare for the worst.

Answer: Even people who understand the risks may downplay them, procrastinate or not feel comfortable sharing copies yet. That makes it even more important to review estate planning documents with an attorney every three to five years and after any major life change.

These check-ins can help ensure your documents reflect current laws, beneficiaries and financial circumstances. They also mean your attorney may have a relatively recent copy if your originals go missing.

Attorneys typically aren’t required to retain copies, but many do, especially since scanning technology became common, says Jennifer Sawday, an estate planning attorney in Long Beach. Solo practitioners and smaller firms may not have the storage capacity to keep every document indefinitely, she adds.

In any case, an attorney’s copy is definitely Plan B. Plan A is to store the originals somewhere secure, such as a fireproof home safe, and make sure the right people know where to find them when the time comes.

Q&A: Another place to search for a lost living trust

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Dear Liz: In a recent column, you quoted an estate planning attorney who suggested ways to find a copy of a living trust after a parent’s death. I have no quarrel with her advice, but suggest a simpler option to consider: See if there is a bank safe deposit box in which such a trust might be located.

Older individuals tended to keep safe deposit boxes for decades, and if a child finds a key in the living mother’s possession, that might be a good place to look for the missing documents.

Answer: It’s worth a shot.

The parent in question, who suffered from dementia, destroyed information related to the living trust, including the document itself and the name of the attorney who drafted it. Estate planning attorney Jennifer Sawday suggested checking the deed to the parent’s home, since the attorney or law firm may be listed as the party that requested the deed be recorded when the home was transferred to the trust.

Estate planning experts typically advise against storing living trusts, wills and other estate documents in safe deposit boxes, since banks may restrict access after a death and delay administration of the estate. In this case, though, a safe deposit box might have protected the documents from the parent’s destructive tendencies.

Q&A: What to do when a living trust document is lost

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Dear Liz: My parents created a living trust in 1999 and deeded their residence into the trust. Later, they sold that home, moved to another state and put their new residence into the same trust.

In 2014, my father was diagnosed with dementia. He died in 2020. During his illness, he destroyed most of the critical information related to the trust document, such as the attorney’s name and the trust document itself.

My mother relied on my father for all things financial. She is now 89 (bedridden but mentally sharp) and in need of funds to fix her house up for sale and to provide for her caregiving.

We went to the county recorder, but they could provide no advice and will not complete a property tax deferral without a copy of the trust document.

My credit union also will not fund a home equity line of credit without the trust document. Any recommendations in addition to seeking out an estate attorney?

Answer: Return to the county recorder’s office, retrieve the deed and check to see who requested the document be recorded, suggests Jennifer Sawday, an estate planning attorney in Long Beach.

Many attorneys put either their own name or the firm’s name in that field, she says. If you can identify the attorney and they’re still in business, you can contact them to see if they might have a copy of the trust.

Keep in mind that lawyers generally aren’t required to keep such copies. The attorney’s job is to properly prepare and deliver estate planning documents, Sawday says.

Once those originals are delivered, it’s the client’s responsibility to keep and safeguard them.

If a copy can’t be found, your mother’s legal options will be heavily dependent on the state law where she now lives, Sawday says. For example, in California, people can petition the court to establish the terms of a trust.

Attorneys sometimes use this process when a trust is discovered after someone has passed away, but the original document can’t be found, Sawday says.

An estate attorney can advise your mother about her options.

Estate planning should be an ongoing process. Any major life event, including a move to a new state or a diagnosis of dementia, should prompt a review of the documents.

Even without major changes, estate plans should be checked every three to five years and beneficiary designations reviewed annually. Many people resist paying for such reviews, but the cost of correcting a mistake can be considerably more.

Q&A: What to do when you missed years of inherited IRA distributions

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Dear Liz: I inherited my father’s IRA through a trust in 2010. Unbeknownst to me at the time, I’ve now found out I should have taken that money out over the following years, but I didn’t.

I turned 73 in May of this year, and I’d like advice on what I should do with that account.

Answer: Get thee to a tax pro. You’ve got some distributions to make, taxes to pay and penalties to mitigate.

Today’s rules for inherited IRAs require most non-spouse beneficiaries to empty the accounts within 10 years, thanks to the SECURE Act of 2019.

Before that, most beneficiaries could spread required minimum distributions over their own lifetimes.

Depending on the type of trust, you might have been required to take RMDs at the same pace your father was taking them. But either way, distributions were supposed to be made.

You (or better yet, your tax pro) will need to reconstruct the distributions that should have been taken since 2010, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Those distributions should be made as soon as possible, and then you (or better yet, your tax pro) can ask for relief from the possible 25% excise tax penalty that would otherwise be owed on the distributions you missed.

Your tax pro will need a copy of the trust, your dad’s date of death and the IRA’s Dec. 31 balances for every year since then.

Q&A: Can you revoke a revocable trust?

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Dear Liz: Is it possible to revoke an irrevocable trust?

Answer: Surprisingly, yes, in some cases it’s possible to revoke an irrevocable trust, depending on state law, the terms of the trust and the circumstances. For example, a trust could be dissolved or changed if all the beneficiaries agree and a court approves. In other cases, assets can be “decanted” from the old trust and put in a new, less restrictive trust. An experienced estate planning attorney can review the trust and offer advice.

Q&A: Should grandparents open their own 529 plans?

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Dear Liz: My two grandchildren are in middle school and are expected to attend college. I’d like to contribute to 529 plans for them, possibly making five years’ worth of contributions at once. Should I contribute to the plans their parents have established, or open separate 529s so I can maintain control? I’m 86 and live in California; my grandchildren live in Oregon. What would you suggest?

Answer: As you know, 529 college savings plans allow you to contribute up to five times the annual gift tax exclusion limit in one year and treat the contribution as if it were made over five years. Since the annual limit in 2026 is $19,000, you could contribute up to $95,000 per child this year without reducing your lifetime gift-and-estate tax exemption. This “superfunding” is allowed whether you set up the accounts yourself or contribute directly to the already-established ones.

To be clear, the five-year rule doesn’t offer a direct tax break to you. But if you’re concerned about estate taxes, the five-year election can get a chunk of money out of your estate. Keep in mind that most people don’t have to worry about estate taxes, as the current lifetime limit is $15 million per person.

You’ll need to file IRS Form 709 to make this election. If you make other financial gifts to the grandkids during the five-year period, you must file gift tax returns to report those amounts to the IRS. And if you die before the end of the five-year period, the portion of the 529 contributions attributable to the years after your death will be added back to your estate. Your estate planning attorney can offer further advice.

If you’re not worried about estate taxes but you’re certain you won’t need the money yourself, you might still make a large contribution now to get the money growing tax-free for your grandchildren’s educations. Or you can simply make annual contributions and either keep them under the annual gift tax exclusion limit or be ready to file gift tax returns if you go over the limit. You won’t owe any gift taxes until your gifts over the annual exclusion exceed that massive lifetime limit.

Now, on to the question of whether to open your own accounts or contribute to the existing ones. Opening your own accounts for the grandkids means you’ll get to maintain control over the funds until they’re needed, plus the money isn’t considered in federal financial aid calculations. Only 529s owned by parents or students have to be reported in the Free Application for Federal Student Aid (FAFSA), although some colleges may use other formulas when awarding their own aid.

Contributing the money directly to the plans already established means the parents will control the funds. On the plus side, that relieves you of the burden of administering the accounts.

Oregon does offer an income-based tax credit for contributions that maxes out at $190 for single filers and $380 for married people filing jointly. Only Oregon taxpayers making the contribution to Oregon educational plans can get the credit, however. If you give the money to the parents rather than directly to the 529 plan, you’ll need to keep gift tax rules in mind since any gift over $19,000 per recipient would need to be reported.