Many Americans who have an estate plan wait 20 years or more before deciding to update their legal documents. This 20-year pattern typically follows major life milestones – creating an initial plan when children are young, updating when children leave home, revising at retirement and making final updates at an advanced age. While this approach might seem logical, estate planning experts warn that such lengthy gaps between reviews can leave your estate planning documents and decisions – such as your last will and testament, revocable living trust, powers of attorney, advance directive and beneficiary designations – dangerously outdated and potentially ineffective.
Understanding when and why to update your estate plan is crucial for maintaining a robust strategy that protects your assets and serves your beneficiaries' best interests. Regular maintenance helps to ensure your plan remains aligned with current laws, family circumstances and personal goals.
Why regular estate plan reviews are essential
Regular reviews of your estate plan are crucial to ensure it remains effective and relevant. Legal experts recommend reviewing your estate plan every three to five years, even if no major life changes have occurred. This helps keep your plan current with changes in estate planning laws and strategies as well as personal situations. However, certain life events necessitate an immediate review of your estate plan to prevent potential vulnerabilities.
Estate plans are based on laws that are extremely sensitive to major life events, such as marriages or the purchase of new property. If you don't update your estate plan after these life events, you could see your assets go to someone you don't want, get stuck in lengthy probate proceedings or bypass a beneficiary entirely. By staying proactive with your estate planning, you can have peace of mind knowing that your assets will be distributed according to your wishes and your loved ones will be protected, regardless of what life changes may come your way.
How marriage affects your estate plan
A change in marital status, such as marriage, divorce or the death of a spouse, significantly impacts your estate plan. When you marry, you'll likely want to include your spouse in your estate plan by updating beneficiary designations on life insurance policies and retirement accounts, revising your will or trust to include them, considering joint ownership of assets and updating powers of attorney and health care directives.
Conversely, divorce requires removing your ex-spouse as a beneficiary from your will, trust and other accounts. You’ll also need to change beneficiary designations on life insurance policies and retirement accounts and revoke powers of attorney naming your ex-spouse. If your spouse passes away, update your will or trust to redistribute assets previously intended for them and reassess your overall estate planning strategy.
How birth or adoption of children impacts estate planning
The arrival of a new child through birth or adoption is a joyous occasion that creates a new reason to review your estate plan. Consider naming guardians for minor children in your will, creating or updating trusts to provide for their future needs, adjusting beneficiary designations to include the new child and purchasing life insurance to provide financial security for your growing family. Ensure these updates are made for each subsequent child to equally protect all children in your estate plan.
It's important to note that these updates should be made not just for your first child, but for each subsequent child as well. This ensures that all your children are equally provided for and protected in your estate plan.
Financial changes that require estate plan updates
Significant changes in financial status should prompt a review of your estate plan. An increase in wealth might require reassessing your overall strategy, considering advanced techniques to minimize taxes, exploring charitable giving options and updating asset protection strategies. Conversely, financial setbacks may necessitate adjusting distributions in your will or trust and reassessing life insurance coverage.
Remember, your estate plan should reflect your current financial reality, not just your aspirations or past circumstances.
Moving to a new state: What you need to know about estate planning
Moving to a new state requires an immediate review of your estate plan because laws vary significantly between states. Areas potentially affected include the validity of wills or trusts, powers of attorney, health care directives, community property laws and state-specific inheritance taxes. Even if moving between states with similar laws, it's wise to have plans reviewed by attorneys licensed within those states to ensure everything remains valid and optimized post-move.
Real estate purchase or sale
After the purchase of a property, you'll need to decide how it's shared after your death in your will. Alternatively, you may want your estate to sell the property and distribute the funds to beneficiaries. Either way, you don't want to neglect the addition of this major asset.
The same is true for a sale. Removing the mention of the property in your estate planning documents makes everyone's life easier in the future. You may want to set up a living trust to allow the property to pass quickly to your family without the need for probate.
Business ownership or sales
If you start a business or buy an interest in an existing one, you should include this in your estate planning documents. What should happen to the company when you pass away? Would you want to sell it, or see it continue under someone else's leadership? If you have recently sold the business, you should also update your estate planning documents.
Illness, accidents or medical conditions
Health-related changes often signal the need to update your estate plan. When you develop a serious illness, suffer an injury or face a life-limiting condition that affects your ability to manage assets, your estate planning documents should reflect these new circumstances. A comprehensive estate plan should designate a health care proxy and include powers of attorney to ensure someone can make medical and financial decisions on your behalf when needed. An advance directive or living will is also crucial, as it specifies your preferences for end-of-life care.
The impact of health changes extends beyond your own situation. If a spouse or child experiences significant medical issues, your estate plan may need modification to protect their interests. For instance, establishing a special needs trust can provide financial support while preserving their eligibility for essential government benefits. While implementing these provisions early offers the best protection, adding medical planning documents to your estate plan is valuable at any stage of illness or injury.
Conclusion
While these life events are critical triggers for an estate plan review, they're not the only reasons to revisit your plan. Regular reviews can help ensure your plan remains current and effective. By staying proactive with your estate planning, you can have peace of mind knowing that your assets will be distributed according to your wishes and your loved ones will be protected, regardless of what life changes may come your way.
Remember, estate planning is not a one-time event but an ongoing process. By treating it as such and staying vigilant about updates, you can ensure that your legacy is preserved and your loved ones are cared for in the way you intend. If you've experienced any of these life events or it's been a while since your last review, consider consulting with an estate planning attorney to ensure your plan remains up-to-date and effective.