But how do you know when you need to update your estate plan? Generally, substantial changes in your personal or financial circumstances should alert you to the need to update your estate plan, but the need for revisions can arise for other reasons too.
One of the most common reasons for updating an estate plan is changes that occur within a family. Those events can occur in many different ways, including birth or adoption of a child or grandchild, marriage or divorce (your own or a family member’s), or loss of a loved one. When those changes take place, you should update your estate plan.
Family developments involving health-related matters are an important reason to update an estate plan. If you, your spouse, or any of your family members develop serious health issues, your estate plan should take that change into account. In addition, if a family member undertakes significant caregiving responsibilities, you may want to talk with your lawyer about how that affects your estate plan.
Retirement planning should include a full review of your estate plan with your attorney. As you plan for the changes in your life that naturally occur as you grow older, make certain that your estate plan covers all contingencies that could arise.
Children (or grandchildren) reaching the age of majority is another event that may warrant changes in your estate plan. As children grow up and have families of their own, parents should ensure that their family legacy is protected against a number of risks.
Steps can be taken to protect assets from squandering by financially irresponsible family members, access by outsiders who marry family members (and later claim the right to family assets in a divorce), and other situations that arise as family members become adults. Special consideration for protecting the inheritance of grandchildren is a common reason for making revisions in an estate plan.
Consideration of family changes address some potential beneficiary changes, but you should also be attentive to whether designations of non-family beneficiaries are current. If your estate plan includes gifts to charities and other organizations, you may need to make revisions to those provisions as your activities and interests change.
When you review your estate plan, you also should review your named fiduciaries, including the executor of your will and your trustee (if your plan includes a trust). Check all of your estate planning documents, including durable powers of attorney. You should consider whether you wish to make any changes in the agent designations for managing your finances and making your healthcare decisions in the event of incapacity.
When you review your plan to determine whether changes are necessary, do not forget to consider any separate documents and accounts with named beneficiaries, in addition to your other estate planning documents. You should review beneficiary designations in items like life insurance policies, IRA and 401(k) accounts, and other retirement accounts.
Any substantial change in your financial situation should prompt a review of your estate plan. That includes changes in business interests, such buying or selling a business or starting a new business. It also includes major changes in your employment and income.
Revisions in federal and state laws and regulations can significantly affect estate planning and necessitate changes in your plan. An excellent — and very recent —illustration is federal law changes in the SECURE Act, which went into effect on January 1, 2020. Many individuals who own IRAs and 401(k)s will need to make changes in their estate plans to address the impact of that legislation on inherited accounts. (Additional details about those changes are provided in our blog post on the SECURE Act IRA and 401(k) provisions.)
Another example occurred just two years ago, when the Tax Cut and Jobs Act implemented substantial (but possibly temporary) changes in federal estate and gift tax rules. Those revisions prompted many individuals to evaluate their estate plans and gifting plans for tax saving opportunities.
If you change your state of residence, the state laws and regulations governing some aspects of your estate plan in your new residence state may be different from those of your former state. You should review your plan documents with an estate planning attorney in your new state of residence to ensure compliance and conformity with all the laws of that state.
State laws also come into play if you maintain homes in more than one state. For example, if you spend winters in Florida — as many Michiganders do — you need to take laws of both states into account in your estate plan. If you acquire property in a state other than your residence state, the acquisition also should prompt you to review your estate plan to determine the impact of owning out-of-state property.
Understandably, trying to remember to review your estate plan “when substantial changes occur” isn’t always easy. The truth is that most people don’t keep their estate plan at the fore of their thoughts, especially when life is changing.
For that reason, some estate planning professionals suggest reviewing an estate plan every three or five years. That may be sufficient in some situations — but only if you remember to do it. A better approach is to set aside a specific time each year to do your own annual review of your estate plan.
There are a couple obvious choices for timing your annual review. You can make it one of the first tasks you complete at the beginning of a new calendar year. Or, you can add it to the list of tasks you complete each year when you work on your taxes, when you will already be focused on your finances.
Whatever time you choose for your annual review, sit down with all your estate planning documents, go through our summary above, and determine whether there is a reason to update your estate plan. If there is, pick up the phone and call your estate planning attorney.
At the law firm of Barron, Rosenberg, Mayoras & Mayoras, P.C., we provide a full range of services relating to estate planning. We’ve been serving clients in Oakland County and beyond for more than 40 years. Our clients count on our commitment, experience, and credentials when they turn to us for their legal needs.
Call us today at (248) 494-4577 or use our online form to talk with our experienced estate and probate attorneys.