Estate planning is an ongoing process. Rather than a one-time task you complete and put away, proper planning includes giving your plan regular reviews to ensure that your plan continues to be structured in a way to best address your needs and accomplish your goals. Whether there's been a change in the law, the economy, your life or simply an extensive passage of time, a check-up is the ideal way to ensure the well-being of your estate plan.
One of the worst errors you can make in estate planning, short of never getting any estate plan at all, is mistakenly believing that estate planning is a “once and done” process. Proper estate planning is about more than just creating and executing a plan; it is also about maintaining that plan once it is in place. With that in mind, here are six top reasons why your estate plan should undergo a “checkup,” if it hasn't already.
- Life event changes
- Legal changes
- Economic changes
- Major travel or medical procedures
- Changes to your (or loved one's) health
- Passage of time
These types of events typically involve births and deaths among your loved ones, and marriages and divorces (either yours or those of your loved ones.) This checkup, especially in the event of a divorce, is extremely important and entails reviewing your entire plan, not just your will or trust. Failure to review your plan after one of these events occurs can create some dramatically unintended (and probably undesired) results. In a 2013 case, the US Supreme Court allowed a man's ex-wife to receive a $124,000 life insurance payout when he died. The man had updated most of his plan after the divorce, but had never updated the death beneficiary form on his life insurance policy, leading to the unintended outcome.
Whether it is to take advantage of new benefits or to avoid potential new pitfalls, changes in the law require a review, as well. Your state may have just begun recognizing transfer-on-death deeds on real estate, may have changed the content of its power of attorney or living will templates or may have made changes to death tax rules. These changes might mean you need a new document prepared, or might mean an alteration to your lifetime gifting strategy. Regardless of the exact change, a review can help you be confident that you are best positioned to deal with the new rules the new law dictates.
These changes can be global or personal. A shift in the economy might lead you to alter your financial plan, and that alteration might mean making changes to your estate plan. Perhaps an economic downturn has led you to move wealth previously funded into your living trust into an annuity account that is outside the trust. Your review will help you ensure that all of these new pieces continue to work well together and the totality of your legacy is still distributed to those you want (and in the proportions you want.) Also, purchasing or refinancing a new home, taking on significant new debt or receiving a large influx of new wealth (like an inheritance) should also trigger a review to make certain that your plan is equipped to reflect your new personal financial situation.
If you are planning on taking an extensive trip, or are staring down the likelihood of surgery, a review is a good idea. If your trip will take you away from home for a long time, your agent under your financial power of attorney may need to handle your affairs while you're away. Similarly, your agents under either (or both) of your financial or healthcare powers of attorney may need to act on your behalf while you're recovering. A review can make sure that these documents are optimally structured to give your agents the powers they need, and only those powers you want them to have.
These events can cover a range of possibilities. For example, if you've been diagnosed with early-stage Alzheimer's disease, that does not make you mentally incapacitated. However, it does mean you should have an estate plan review, so that your plan is properly prepared to deal with the possibility of incapacity, should your condition worsen. Also, if a close loved one is incapacitated and has become dependent on you, a review is in order. A review can make certain that the proper preparation and planning is in place to deal with your loved one's care should you no longer have the ability to handle it yourself.
Even if you've experienced none of these life events, you should still have your plan reviewed annually. The law may have changed without your knowing, or perhaps a discussion with your team of estate planning professionals may reveal an event or issue that you overlooked. An annual review allows you and your team the opportunity to ensure that everything about your plan remains ideally structured to protect your family and your legacy.