Estate planning is not something that can be done and then forgotten. Understandably, many individuals don't like the topic, so once they have their plan in place they don't want to revisit it. Yet, failing to periodically update your estate plan can result in consequences you would have never wanted.
Since life circumstances are constantly changing, it only makes sense that your estate plan should change, too. You likely had specific goals in mind when you first created your estate plan, but as life progresses your specific needs and goals will change.
This is precisely why it's crucial to update your estate plan periodically. If you fail to do so, your plan may result in unintended consequences arising, such as individuals you no longer wish to act on your behalf making life-altering decisions.
Let's take a closer look at some reasons why you should consider reviewing your estate plan with an experienced attorney to ensure it's up to date.
Major life events will warrant a second look at your estate planning documents. For example, if you've recently been married, you will want to update your documents to include your spouse and the share of your estate that you wish for them to receive.
This is especially important if you intend to leave your spouse less than everything that you own. Unless you have a prenuptial or antenuptial agreement, an updated estate plan is the best way to remain in control of how your assets will be distributed. Additional major life events that should prompt a plan review include:
Divorce or remarriage
Divorce is tough and once it's finalized you may not have the same relationship with your ex-spouse. If you no longer want your ex-spouse listed as a beneficiary, as your agent under your durable power of attorney or as your health care surrogate, then you must make changes to these documents.
Otherwise they may still make important life decisions for you during a time where you cannot voice your concerns. Remarriage is also an important milestone in life. Oftentimes, one of the spouses may have children from a prior relationship.
You will need to update your estate plan to be sure you do not unintentionally disinherit your children from a prior marriage and also to be sure you're planning for your new family.
Death or illness
If your fiduciary (e.g., the successor trustee of your trust, personal representative of your will, your agent under a power of attorney, or your health care surrogate) is now deceased or ill then you may need to update your estate plan. The key factor here is who was listed after the deceased or ill individual.
If you don't have anyone else listed or the remaining individuals you have chosen are ill or elderly, then you need to take the necessary steps to name another trusted individual to fill these important roles.
With a minor child, your goal with creating an estate plan was likely to nominate guardians to raise them should something happen to you. Yet, adult children change things quite a bit. Your adult child has developed their own personality, habits and independence.
This means you may feel comfortable placing your child in a fiduciary role or leaving them a great deal of inheritance outright (as opposed to in trust). However, this could mean that you want to put extra protections in place to ensure your adult child doesn't overspend, finishes college or to protect their inheritance from a potential future ex-spouse
Moving to a new state
If you've recently moved to a new state, then you should plan to consult with an attorney barred in that jurisdiction. State law varies greatly from one state to the next and you want to be sure that your estate plan is valid and will still accomplish your goals. Usually the last will and testament and health care documents will need to be updated.
Changes in the law
The law is never static, which is why this reason alone should push you to update your estate plan. Even most recently, we have seen drastic changes in the law directly impacting retirement accounts and estate planning tools (such as the revocable living trust).
Some of the most recent major changes in the law include:
Federal estate tax exemption
In 2022, the exemption for federal estate taxes, gift taxes and generation-skipping transfer taxes increased to $12.06 million for an individual. Although most individuals don't have a net worth exceeding the current exemption amount, they may have a net worth of $5 million or more.
This could become problematic since the exemption is scheduled to be reduced back to $5 million in 2025. There are ways to reduce future federal estate taxes, but it is best to consult an attorney to come up with potential solutions.
The estate plan you have now may be serving you under the current exemption, but it may not be the best solution if the law changes.
The SECURE Act
The SECURE Act has made significant changes that directly impact the beneficiaries on your retirement accounts and your estate planning. Gone are the days when your nominated beneficiary could stretch the distributions over their own life expectancy.
Now the beneficiary must withdraw the entire balance within 10 years of your death, which means that long-term asset protection is no longer available. This also will result in the acceleration of income tax that will be due and ultimately result in your beneficiary being in a higher tax bracket.
If you have created a revocable living trust or a standalone retirement trust, then it's crucial that you update your estate plan to see what changes need to be made.
Periodic reviews are necessary to ensure that your estate plan is up to date. Your estate plan will likely need to be modified at some point to either reflect the changes in law or in your personal life.
Consulting with an attorney for a review is the only want to be sure that your plan will never fail. Moving forward, pay attention to those major life events that take place and pick up the phone to schedule a meeting to see how your plan can continue to serve you.