There are many reasons to update your estate plan, and yet many people neglect to do so until it’s too late. If you have experienced a major new life event, take a step back and consider if it should result in some changes to your estate. In the event of a tragedy, a regularly update estate plan will give you a peace of mind your family is properly provided for. Following are some of the top reasons to review your estate plan:
1. Updates in the law
It’s a good idea to stay aware of changes in the law when it comes to estate planning. Estate taxes increase each year with inflation. If your estate plan was made several years ago, then laws could have changed enough to cause major income tax issues with your estate if you were to pass away.
To further explain, an estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Currently, a filing is required for estates with combined gross assets and prior taxable gifts exceeding $5.45 million in 2016, up significantly from $1.5 million in 2004.
2. Death of a beneficiary
This is an event that unfortunately happens often. If you fail to update your estate plan following a particular beneficiary’s death, then Uncle Sam could be the one that decides how your estate will be allocated. Some beneficiaries could receive more than you intended, while others could get less or event completely disinherited. Not updating your estate plan after a beneficiary dies could also result in the lengthy probate process, where other heirs would need to be located and a chunk of your estate funds would go toward court costs.
There are many unintentional consequences that might come about when a beneficiary under your estate plan dies. It could create a situation where some beneficiaries get more that you intended and others get less or even completely disinherited. Even though you listed a beneficiary, their death could also cause your estate to go through probate and intestate succession where heirs would need to be found.
3. Illness or disability of beneficiary
You may not realize the issues this event could cause. If a beneficiary you have named power of attorney, personal representative or trustee is suddenly unable to act on your behalf due to an illness or disability, you will need to update your estate plan to include a new, qualified individual.
Also, if you named someone as a beneficiary that has since become disabled, willing them those assets could actually make them ineligible for some public benefits they are receiving. Talk with a financial attorney and/or lawyer to validate how this could affect your personal situation.
4. Birth or adoption of a child
If you’ve made any new additions to your family, whether through the birth of a child or an adoption, you should review your estate plan to ensure he or she is included. If you wish to leave the child an inheritance, consider the specific age when he or she should receive those funds and specify that in your plan. Be as detailed as possible with your wishes concerning a minor child, including the person or people who you wish to become his or her guardian should something happen to you.
5. Marriage, remarriage or divorce
Last, but certainly not least, marriage makes a huge difference in an estate plan, in terms of laws that would apply at your death. It’s very important to update your estate plan promptly after an event such as a marriage, since in most states spouses have the ability to make claims against your estate if you die without a will or trust.
If you get divorced or remarried, revisit your estate plan to make any changes that may affect your situation. For example, if you have minor children that are named as beneficiaries of your assets, but you don’t want an ex-spouse to have control over those assets as the guardian of your minor children at your death, then you should adjust your estate plan accordingly.
The bottom line: It’s a good idea to review your estate plan at least once every year or two, or even more often if you experience one of the above major life events. Making sure your plan is updated will give you a peace of mind about the future of your family should something happen to you. For more information about estate planning, read this previous blog.