Estate planning should be an on-going process rather than a one-time transaction. Changes in life and in the law are inevitable, and it is important to keep your estate plan up to date. When you put your estate plan into place, it was based on the laws at that time, the people in your life, your financial situation, and a best guess on what could happen in the future. If you reflect on the last few years of your life, you might be surprised at how much change has occurred, and change is what can necessitate a review of your estate plan. If your estate plan is not maintained to reflect constant change, then your plan might not work when you need it to. Keeping your estate plan current is a vital part of ensuring that everything is secure for your family and beneficiaries.

Clients often ask, “how often should I update my estate plan?” While your estate plan should be revisited regularly, it is recommended to meet with an estate planning attorney to discuss an update if any of the changes below have occurred.

COMMON SCENARIOS WHEN AN ESTATE PLAN UPDATE IS NECESSARY

1. Changes to Beneficiaries – If any of your beneficiaries in your will or trust have passed away, if a charitable organization is no longer in existence, or if you want to add or remove beneficiaries, then your estate plan needs a revision to reflect the change. Additionally, if a current beneficiary has special needs and receives means-based government benefits, it is important to make sure that your estate plan has adequate safeguards in place for any future distributions to that beneficiary so that he or she does not get disqualified from receiving the benefits.

If you created an estate plan when your beneficiaries were minors, then you might have put restrictive provisions in place to make sure that they do not receive their inheritance all at once. If those beneficiaries are now mature adults, those provisions might not be necessary anymore.

Conversely, you might have a situation where a beneficiary has developed poor financial habits or substance abuse issues and your estate plan distributes one hundred percent of his or her share outright at your death. In this scenario, you might want to change your estate plan by staggering distributions so that a beneficiary does not receive an inheritance all at once or put structures in place so that a beneficiary only receives portions of the inheritance under circumstances, such as passing a drug test.

2. Children and Grandchildren – Having children is life-changing, and it is a time when your estate plan needs to be updated. There are many estate planning considerations when children are involved. Have you named a guardian to take care of your children if something happens to you or your spouse? If a child is disabled, have you put the requisite measures in place? Have you made sure your children will be provided for financially? Do you want to put provisions in place so that your children do not get their inheritance at a young age or all at once? Do you want to add your children as secondary beneficiaries on assets?

If you have children from different marriages or want to include stepchildren in your estate plan, you will want to change your estate plan to address this.

Becoming a grandparent is also a life-changing experience. If you are a grandparent, are your grandchildren accounted for in your estate plan? Estate plans that were created when children were born might not have accounted for the possibility of future grandchildren. For example, if your estate is set up to distribute equally between your son and daughter, and if your son predeceases you, will his share go to his kids or will it go to your daughter? You might also want to think about adding grandchildren as contingent beneficiaries to assets such as retirement accounts or life insurance policies.

3. Death of a Spouse – Most married couples list their spouse as executor of their will, successor trustee of their trust, and power of attorney, and those estate planning documents will need updated if a spouse passes away. It is important to make sure that you have up to date powers of attorney so that if you become incapacitated someone is able to step right in and make your health care and financial decisions. You will also want to update beneficiary designations on life insurance, financial accounts, and other assets.

4. Tax Law Changes – New tax laws are constantly passed that need to be accounted for in your estate plan. A couple significant tax laws that have been passed in recent years include the Tax Cuts and Jobs Act of 2017 and SECURE Act of 2019. The Tax Cuts and Jobs Act of 2017 increased the estate tax exemption for individuals and married couples with adjustments each year for inflation. In 2021, the estate tax exemption is $11.7 million for a single person and $23.4 million for a married couple, meaning you can pass away with up to these amounts in your estate without owing any federal estate tax. If you created your estate plan when the estate tax exemption was much lower, your plan might include provisions that require you to give up control of assets to meet the tax exemption at that time, and therefore a change to your plan could be necessary since the exemption is higher.

The SECURE Act passed in December of 2019 significantly changed retirement plans, notably an increase in Required Minimum Distribution (RMD) age from 70 ½ to 72, eliminating the maximum age of contribution, and requiring full distribution within ten years instead of a lifetime stretch for most non-spouse beneficiaries after the death of the owner. The new distribution requirement could necessitate a change to your estate plan. If you have a trust set up as the beneficiary of your retirement account with the goal of minimizing income taxes and preserving distributions for a beneficiary, the provisions might need changed to account for a larger income tax hit and distribution of the entire account to a beneficiary within ten years.

5. Marriage or Divorce – After a major life change like a divorce or marriage, one of the first things you should do is update your estate plan accordingly. You should add your new spouse and remove your old spouse from all estate planning documents, including a will, trust, and powers of attorney. You will also want to change beneficiaries on assets, such as real estate, bank accounts, retirement accounts and brokerage accounts. Additionally, if you are not married but want to include your partner in your estate, you should update your estate planning documents to reflect it.

6. Changes to Finances – Your estate plan should reflect any changes to your financial situation. If you have purchased or sold any properties, made investments, or inherited assets, you will want to make sure you update your estate plan to reflect these additions.

If you have started a business, do you have good insurance and a thorough operating agreement? What about a succession plan for your business? If you expect your estate to steadily grow over time, it could benefit you to discuss estate tax planning strategies with an estate planning attorney.

WHAT IS THE NEXT STEP?

If you have an estate plan that has not been reviewed recently or at all, then now is a good time to review to make sure your plan aligns with your vision and changes to the law and your life. I recently met with a couple who had an existing estate plan that was put into place when their kids were born years ago and had not been reviewed since. It turned out that their plan was outdated, as there were changes to the law, their family structure, their net worth, and their planning goals. Had they not updated their estate plan, their vision would not have been fulfilled and the family would have dealt with unintentional consequences.

Your estate plan should reflect changes in life. If would like to review your existing estate plan, please contact Alex Carr Law, LLC today.