There are two widespread errors in estate planning. One error is not to have a will or other key elements of a plan. The other error is to fail to update the will and estate plan. This article isn’t for those who still haven’t established at least a basic estate plan. But if you have an estate plan, your work isn’t done. Estate plans need to be reviewed and revised from time to time.
The time to revise an estate plan varies. If your estate plan is three or more years old, you and your estate planner should review it. Of course, if there’s a change in the tax law or other laws that govern your estate (such as powers of attorney or advance medical directives) it’s time to have the plan reviewed.
In addition, an estate plan should be reviewed when specific events occur in your life. These events or changes in circumstances often create a need to update the plan. Here’s my list of the most likely events that should cause you to contact your estate planner.
You moved to another state. Estate planning laws aren’t national. Each state has its own laws with their difference nuances. Some of the differences can seem trivial, such as the number of witnesses required in order for a will to be valid. Others are more substantive. Many states, for example, require that a spouse inherit a minimum share of the estate, but the requirement varies between the states. Also, some states still have inheritance or estate taxes, while most don’t.
State laws vary on other elements of the estate plan, such as powers of attorney, advance medical directives, living wills and more. If you moved, these documents need to be updated for your new state or they could be ineffective.
You also should work with your estate planner to establish proof that you changed residence. This is particularly important when you have a substantial estate and moved from a state with inheritance or estate taxes. Many of the states with those taxes assert that people haven’t changed their legal residence and their estates are fully taxable in their old states.
When you acquire a secondary residence in another state, your plan also might need an update. You might want to work with your planner to determine which state should be your principal residence. You also might want powers of attorney and advance medical directives that are valid in the new state in case you become disabled there.
The objects of your affection change. For most people, this happens when there’s an addition to the family. There might be a new child or grandchild. It’s best to revise the documents so the new family members are named and specifically included. That would avoid potential conflicts and lawsuits. You also might have a new in-law and want to revise the documents to reflect that.
There might be instances when it is appropriate to delete someone who formerly was included in the estate plan. There might be a death or divorce in the family. You also might want to disinherit someone who’s been irresponsible with money or is estranged from the family.
Of course, you might have divorced, remarried or become widowed since the will was written.
You also might be more (or less) charitably inclined than you were or want to change the charities included in your will.
Your assets or liabilities change. A significant change in the value of your estate since the plan was drafted should cause a review, whether the estate’s value increased or decreased. You need to review how the property is divided and decide if that still is what you want in light of the new circumstances.
A change in the composition of your estate also merits a review. You might have sold an asset, such as a business or real estate, that was a major part of the estate. Or you might have added such an asset. Either change means a reassessment of the plan is in order.
Your qualified retirement plan is outdated. One of the major mistakes in estate plans is failing to update the beneficiary designations of IRAs, 401(k)s and other retirement plans. The beneficiary of these accounts is determined by the beneficiary designation form on file with the plan, not your will or trust. Often these forms haven’t been reviewed in 10 years or more. Updating the beneficiary designations is especially important if the value of your account increased substantially.
Beneficiary designations also control who receives annuities, life insurance, some financial accounts, and some other assets. Be sure to review all these forms and amend them if that’s desired.
Executors or trustees become inappropriate. The executors and trustees are the people who implement your plan and often determine how successful it is. Most people don’t give a lot of consideration to these appointments. Even when the appointments were made carefully at first, circumstances might have changed. Carefully reconsider the people appointed in your estate plan. Are they still able and willing to perform these jobs as you’d like them done? Has your estate changed so that someone else now is a better choice? Has anyone aged, moved away or passed away? Determine who is the best choice for these positions today.