Updating Estate Plan

Estate plans are critical to ensure a person’s life work and wealth is protected and is passed down appropriately to their heirs. Since life and financial circumstances change over time, estate plans must be updated regularly in order to offer the best protection possible in the event an individual becomes incapacitated or passes away. Generally speaking, it is good practice to have estate plans routinely updated every three to five years at a minimum, if not more often. Failure to update estate plans on a routine basis may eventually cause issues in probate court.

Because of the generally complex nature of estate plans, it is strongly advised to consult with an experienced attorney specializing in estate planning. This will not only make the process easier, but it will ensure the plan protects heirs, transfers assets with minimal taxation, protects family members and overall results a structure that best serves the interests of the individual and their family.

Reasons to Update an Plan

There are many different circumstances and situations that prompt the modification of an existing estate plan. Many of these changes can render an estate plan considerably weaker or even obsolete. Updating an estate plan regularly can prevent these problems and ensure an individual and their family is protected. Below are the most common situations that require the modification of an estate plan.

Changes in Tax Laws – Periodically changes are made to estate and tax laws. Because estate plans must follow state and federal law, an estate plan that is out of date can cause issues with the execution of a will after the death of an individual, or result in difficulties following their wishes if they become incapacitated. Routinely updating estate plans will ensure they are kept current with state law and prevent these issues.

Divorce, Marriage, or Death – Estate plans set up during a marriage need to be reviewed and updated as soon as possible after a divorce or death of a spouse. For example, if an individual’s last estate plan left property, retirement funds, etc. to their now ex-partner, this may need to be changed. Similarly, if an individual becomes married it’s important to update the estate plan to include their new spouse. Also, after a death in the family the distribution amounts must be recalculated and beneficiaries reassigned.

Changes in Financial Status – As time passes most folks continue to acquire more assets. Some people develop or sell a successful business, inherit money and/or property, or some are even fortunate enough to have lottery or casino winnings. Additionally, others file bankruptcy, lose fortunes, retire, and/or have expensive medical emergencies. All of these financial events, regardless of whether they add to the value of an estate or detract from it, affect an estate plan.

Birth and Adoption – The birth and/or adoption of a child or grandchild is a happy event. Of course, this joyous occasion affects the status of a will/trust. The estate plan may want to include this new member of the family. For example, gifting trusts, education plans, and beneficiaries need to be considered at this time.

Moving – When your family moves to another state your estate plan needs to be evaluated by an attorney in that state. Each state has different tax laws and a qualified lawyer can make sure your plan meets the rules in that state.

Life changes – Sometimes life changes require a modification to an existing estate plan. For example, children and/or grandchildren grow up and may now be named as trustees or no longer require guardians. Sometimes the trustee you picked may have developed a drug habit. In this case, a new trustee needs to be named or someone may need to look after that person’s inheritance so they don’t use the money on drugs. Another example involves an event that leaves a family member disabled and the estate plan may need a special provision to assist this person.

Legal Documentation

There are several reasons to update wills and trusts, estate plans, beneficiary information, and so forth. Unfortunately, individuals can and do pass away without warning or notice. When this happens, it is important that their estate ends up in the hands of the proper beneficiaries. In order for this to happen, it’s vital to keep legal documents up to date.

There are various legal documents that must be available to the estate’s attorney and/or executor. These documents become important to the heirs after an individual pass away or if they become incapacitated. Vital documents include:

  • Wills and Trusts
  • Real estate deeds
  • Financial institution information (bank accounts)
  • Insurance policies
  • Debt information (credit cards, mortgages, loans, etc.)
  • Information on bonds
  • Certified of Deposit (CD) accounts
  • Retirement accounts
  • Utilities
  • Taxes
  • Funeral and Burial arrangements

Estate attorneys may add to this list. Having all this information helps an individual’s family when all this is organized ahead of time, and prevents the estate from going through litigation and probate.

Estate Plan Errors

One major mistake individuals make when drawing up an estate plan is not appointing a guardian for their children. It is important to appoint a clear cut guardian for any children, in writing, to avoid problems at a later date.  Children under eighteen years of age need to be cared for by a guardian if in the event an individual and a spouse both pass away.

By a person planning ahead and taking time to talk with other people in their life about this responsibility, they will make it easier to ensure their children will be properly cared for in the event of their untimely death. Stating their desired wishes in their estate plan will make this official, and allows their children to be cared for until they reach the age of eighteen. If this is not included in their estate plan, the guardianship of their children will be determined in probate court.

Another common issue that is overlooked is inheritance tax. This type of tax is a state tax that is paid on money inherited from a deceased person.  Proper estate planning will utilize methods that minimize tax liability to the recipient.  If there is a large amount of liability, it is advised to divide this tax liability among different individuals.  Doing so makes it easier to account for tax liability and minimize it as much as possible. In addition to this, setting up a trust may remove tax liability.

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