Some time ago, Oldsmobile, the now obsolete division of General Motors, used the advertising slogan “Not your father’s Oldsmobile” to highlight the changes the brand had made.1 This phrase comes to mind often when considering today’s estate planning trends. For many practitioners and their clients, estate planning is indeed much different than it was a generation ago.
Estate planning has historically been considered a mysterious process involving documents using antiquated language, signed with formality, and often involving the dreaded probate process. Public knowledge of the probate process is often incorrect and vague — likely a result of scare tactics used to sell trust packages. Beyond wills, estate planning was at times minimal or even non-existent. Informal arrangements with family members, financial institutions, and even medical providers allowed for decisions to be made and issues to be handled. However, due in part to the growing complexity of laws based on privacy and protecting information, the days of informal arrangements have largely ended.
As with all areas of the law, estate planning has evolved, with many factors contributing to this evolution. The recent trend of increasing the federal estate tax exemption — which has risen from $5 million in 2011 to $12.92 million in 2023 — has decreased the necessity for complex trusts in some situations.2 Longer lifespans, changing family dynamics, and investment trends also contribute to these trends. Estate planning now includes a variety of surrogate decision-making techniques, special needs trusts, and digital assets. The day-to-day practice of an estate planner requires knowledge of more than just wills. It requires knowledge of current investment trends, the ins and outs of governmental benefits, and even familiarity with the medical and mental health arenas.
This article will discuss several key factors that are changing the face of estate planning based upon my own observations and practice.
IMPORTANCE OF DISABILITY PLANNING FOR DECISIONS DURING LIFE
Estate planning is more than just drafting wills. The trend of living longer, including potential periods of incapacity due to dementia or other medical issues, lends itself to the importance of disability planning. Effective disability planning includes creation of durable power of attorney (DPOA) documents designed to address financial needs and designate health care patient advocates. Further, it is crucial for DPOA documents to be drafted with the individual’s specific needs and wishes in mind.
Many people do not realize that a close relationship, even marriage, does not give one person authority over the decisions of another. Also, parental decision-making authority ends when the child reaches age 18.3 This confusion leads to the need for probate court intervention in situations where an individual becomes unable to execute DPOA documents. In those circumstances, a guardianship or conservatorship may be necessary, a result which may not be desired. In fact, in some situations, appointment of a guardian or conservator limits the decisions that can be made on behalf of the individual. It should also be noted that some medical decisions, such as an involuntary admission to a mental health facility, must be made by the court.4
During times of medical crisis or chronic illness, having effective documents that provide adequate authority to the agent is key. Whether it is allowing for government benefit planning on the financial side or allowing for a medical patient advocate to authorize care choices the individual would want, careful drafting is a must.
The current trend is for financial DPOAs to take effect upon signing, allowing agents to assist the principle for convenience purposes, which allows for a smoother transition and has been extremely helpful during the COVID-19 pandemic. While DPOAs do not have expiration dates, it is ideal for a person to revisit those documents every 5-10 years or upon the occurrence of a major life event such as a death, disability, divorce, or marriage.
IMPORTANCE OF BENEFICIARY DESIGNATIONS FOR FINANCIAL ACCOUNTS
An increasing number of banks and financial institutions are allowing (and even encouraging) the use of pay on death (POD) or transfer on death (TOD) designations, which let the account owner to name the beneficiary for the funds. This streamlined process allows for avoiding the probate administration process at the time of death and makes the funds available to the designated beneficiaries once they provide a death certificate and complete necessary forms.
This can be a very efficient method of transferring funds when the overall plan is straightforward, and the beneficiaries are adults suitable to be receiving the funds outright without any strings attached. There are many positive aspects to using POD and TOD designations, but account owners should keep in mind that it is necessary to keep those designations updated if a named beneficiary predeceases and confirm that the designations are correct and on file following any mergers or changes in bank or financial institution ownership.
INCREASED IMPORTANCE OF BENEFICIARY DESIGNATIONS
The shift in retirement planning over the past 40 years has also had a significant impact on estate planning. It is becoming increasingly uncommon for retirees to have traditional monthly pensions. Instead, many retirees rely on 401(k), 403(b), IRAs, and similar accounts to supplement their Social Security income. These individual accounts also come with the flexibility of naming a beneficiary for any funds left at the time of the retiree’s death. These beneficiary designations have become increasingly important as a significant amount of wealth is passed though these accounts. It is critical for account holders to accurately complete beneficiary forms, including contingent beneficiaries. It is also important to understand the process each company uses in the event of an unforeseen event such as the death of a beneficiary.
LADYBIRD DEEDS
Another increasingly popular estate planning tool is the ladybird deed. This deed, also called the enhanced life estate deed, allows the grantor to name a contingent grantee while reserving a life estate and lifetime power to convey the property and even divest the interest of the contingent grantee.5 In layman’s terms, a ladybird deed effectively allows an individual to name a revocable beneficiary for real estate. The use of this type of deed also avoids the need for probate administration upon death and is used frequently in Medicaid planning.6
The catchy name, coupled with the benefit of avoiding probate, have made this an increasingly familiar technique for some clients. While it has many benefits, it also comes with limitations. The use of ladybird deeds is not a good fit for all families. For some, the desired distribution is too complex to accomplish through this process. As contingent grantees eventually become joint owners, too many owners can lead to myriad problems including handling existing mortgages, paying carrying costs, and disagreements on a sale. Also, this technique is not ideal for providing for subsequent grantees should one of the named contingent grantees predecease the grantor.
TRENDS IN TANGIBLE PERSONAL PROPERTY
Another changing element of estate planning is the handling of tangible personal property. An interesting issue to consider is the value of tangible personal property, including the value to beneficiaries and value on the open market. Over the past decade or two, there has been a gradual shift in how tangible personal property is viewed, particularly by the heirs. Increasingly, beneficiaries are not interested in most of the decedent’s tangible personal property. Whether it’s people living longer and beneficiaries not needing the items, differing tastes, or even a change in perspective regarding the importance of items, the trend is clear.
On a pure economic level, the combination of an increasingly disposable society and internet resale sites has made everyday items such as used kitchenware and household items not nearly as marketable as they were previously. Further, the antiques market has also seen a huge decline over the past 20 years.7 These factors make few trustees or personal representatives interested in holding sales themselves as it may not be worth the time and effort. A growing number of estate sale companies are being established to address the need, with some taking a percentage of the profits and others taking flat payments. In some situations, particularly hoarding conditions, a flat payment is well worth the cost.
The increase in hoarding provides its own set of challenges. Hoarding, which is now considered a medical disorder,8 often comes to a head shortly before death when the individual’s health has declined and unable to manage the situation. Family members, personal representatives, and trustees often must step in and assist during life and following death to deal with the situation. During a person’s lifetime, the situation presents a variety of challenges including resistance, denial, increased risk of health issues, and fire danger. In many circumstances, the situation is addressed as a one-time event when in reality it is a disorder likely to reoccur over time. In some situations, it is not until the death of the individual that the mass of items are finally addressed and disposed.
INCREASED USE OF SPECIAL NEEDS OR DISCRETIONARY TRUSTS
Historically, when an individual was determined to have a disability, it was common for family members to omit that person from their estate plans to prevent a loss of government benefits. People recognized the impact an inheritance would have and instead chose to leave the person out or rely on other family members to do the right thing and share with the omitted individual. These informal agreements worked in many situations but as families became more geographically and even emotionally separated, it was clear a different structure was needed.
The Omnibus Budget Reconciliation Act of 1993 (OBRA) led to the widespread use of special needs trusts (SNT).9 OBRA allowed individuals determined to have disabilities by the Social Security Administration to maintain eligibility for government benefits while having excess assets held in a trust with special restrictions and provided the framework for the creation of SNTs. Working within this framework, estate planning attorneys have crafted documents that allow funds to be protected to supplement government benefits. Thirty years after the change went into effect, the use of special needs trusts is still growing.
In addition, a growing variety of tools are available to persons determined to have disabilities and the options are increasingly focused on the autonomy of the individual. In 2014, the Achieving a Better Life Experience Act was passed, allowing individuals with disability determinations who meet specific criteria to establish funds to help pay for qualified disability expenses.10 In 2016, a legislative error from OBRA was corrected to allow disabled individuals with the requisite mental capacity to establish his or her own first-party SNT.11
These options come at a time when public pressure is focused on providing more freedom and autonomy to individuals with disability determinations. For many years, such a determination would have led to restricted access and lack of control regarding decision making. However, the public perception of what it means to have a disability, whether physical or mental, is evolving to acknowledge potential limitations without the loss of freedoms. High-profile cases such as the Britney Spears conservatorship have brought these issues to the forefront. It is likely that the trend of balancing protections and freedoms will continue to push the envelope for future planning options.
Third-party SNTs are also a useful tool for individuals providing for loved ones with disabilities. Similarly, using third-party discretionary trusts for individuals who have not been determined to have disabilities but face other challenges that make allowing uncontrolled access to funds unwise is on the rise. Addictions to drugs, alcohol, gambling, shopping, or the like are a very real and very common issue many people face. When an individual wants to provide for a loved one with an issue like this, using a discretionary trust can allow for funds to be designated for the individual, but not controlled by that person. This trend is growing as families find SNTs work well for their particular circumstances.
CONTINUED USE OF TRADITIONAL TOOLS
Many of the trends referenced above are used in conjunction with more traditional estate planning tools such as the revocable trust. It is common to list a revocable trust as a POD- or TOD-designated beneficiary or use a ladybird deed to fund real estate into a revocable trust. While estate planning is evolving, it is not being recreated. In light of unknown changes to the federal estate tax exemption, which is currently structured to be reduced to $5 million (adjusted for inflation) in 2026,12 proper estate planning may very likely include a comprehensive plan which provides for multiple trusts.
Revocable trusts are still commonly used to provide for the use of assets during the lifetime of the grantor and distribution of assets following death. Revocable trusts allow for consolidated administration, which lets trustees oversee and carry out the wishes of the grantor. Further, in circumstances where there are minor beneficiaries, second marriages, real estate holdings in multiple states, charitable giving, or other more complex situations, revocable trusts are often the most effective estate planning option.
Finally, in some circumstances, a will is the best fit. Preparing a will is typically less expensive than a trust and requires less maintenance prior to death, and some clients are not able or willing to take the necessary steps to create and properly fund a trust. However, unlike a trust which is a private agreement, a will becomes public once it is probated. If privacy is not a major concern, for some clients the best choice is relying on a will and the probate administration process to accomplish their goals.
As with any plan, one size does not fit all, and estate planning is no different. Knowing current trends, recent changes, and available tools allows estate planning practitioners to best meet the needs of their clients.