Most of our clients want to make sure that their plans take advantage of all lifetime benefits and make the eventual administration of the estate as simple and cost effective as possible. The best way to do that is to make sure you keep your plan and its related documents up to date. Failure to keep things current can be very costly.
There are many life-changing events that might cause you to schedule a review. Here are a few to consider:
Buying or Selling an Asset
If you are using the most common estate planning tool, the revocable living trust, that trust is not fully effective unless it controls the assets that make up your estate. Once designed, the trust should become the owner or beneficiary of virtually everything you own (your attorney can tell you about exceptions to this general rule). That is called “funding” the trust. Over time, however, you will sell assets and replace them with new assets. It’s easy for a trust to become “unfunded” and therefore ineffective.
Divorce or remarriage
Many state laws have provisions for cancelling bequests to ex-spouses after divorce. But that may just be the beginning. It is also important to check beneficiary designations on other assets such as life insurance (both individual and group policies), retirement plans, annuities, and bank accounts. Divorce also means the loss of important tax deferral advantages which could mean a significant estate tax due at death. Of course, re-marriage triggers a similar need for review and updating of the entire plan.
Changes in the family
In many cases, new additions to your family will be handled by your existing estate plan. Be sure it covers not only births, but adoptions as well. In cases where you may have made special arrangements for children or grandchildren, you will want to schedule a regular review to make sure that all is being handled properly.
Like divorce, the death of a spouse can mean a major change to your estate tax picture. In the event of the death of another family member, you will want to review your plan to ensure that your distribution scheme continues to work the way you want it to.
Numerous families are now dealing with the issue of aging parents. Some have taken over the role of key care-giver and need to make sure that if something happens to them, alternative plans are in place for looking after an aging or ailing parent. This could include things like naming dependent parents as beneficiaries, or creation of a detailed successor care-giver structure.
The people you name as guardians, conservators, health care representatives and trustees are often family members who are most often chosen for their relationship with you, along with specific skills and abilities. A change in your relationship with them or in their ability to serve will require an update to your plan.
A move to another state
For many clients, a move to a new state should trigger an estate plan review. Will you be a permanent resident or only in winter months? Where will you get your driver’s license and register vehicles? Where will you vote? The answer to these questions and others will determine your legal residency and control such things as state income tax, inheritance tax, and other issues about administration of your affairs if you become disabled or die. The rights of your spouse and the rights of your children may change along with a change of address. Assets may need to be retitled in order to make sure your wishes are accomplished. Important benefits may be lost as a result of a move to a new state. All of these things require a review of your plan.
Selling or buying a business
In many ways, selling a business makes estate planning easier, since you now are dealing with a liquid asset (cash proceeds) as opposed to a non-liquid asset that may be hard to divide among family members. This means that current provisions concerning ongoing operations of the business may no longer be applicable and should be reviewed.
Buying a business will also trigger the need for a review. Depending on the type of business and the involvement of other family members, you may need to update your basic documents as well as deal with business succession and buy-sell issues. Lack of liquidity may now be an issue and you may want to consider adding life insurance to your estate plan in order to provide liquidity for estate equalization, debt repayment, or estate tax. Finding the most tax-efficient ownership structure for life insurance is another reason for an update or review.
Estate and financial planning are subjects that become particularly important at retirement. Beneficiary designations, decisions on withdrawals from retirement accounts, as well as many other issues are key factors triggering the need for an update.
Changes in the law
For larger estates, a changing tax code is reason enough to keep your plan updated. Over the last 25 years, there have been numerous tax changes. The only thing you can count on with tax laws is that they will change again. Sometimes non-tax laws change at the federal or state level which also requires a review of your estate plan. Over the past several years, changes to HIPPA privacy laws have been enacted which impact your health care power of attorney documents. Various changes in laws at the state level affect inheritance taxation. Your estate plan should be an ongoing part of your financial and family life – changing as often as life changes!