I am frequently asked by my estate planning clients whether it’s time to update their estate plan. While there is no universal rule as to when to update your estate plan, there are some common guideposts that should cause you to consider amending your estate plan. So, here are some suggestions, followed by a discussion of some common events which do not require immediate estate plan amendments. This is not a definitive discussion of when to update your estate plan, but hopefully it answers some basic questions.
When do you need to update your estate plan?
1. Your children have reached an age that you no longer have a concern with them immediately receiving their full share upon your death.
Many parents set up their trust so that after they both have died, their assets are distributed equally to their children at certain ages, over a period of years. For example, the assets may be distributed in thirds at ages 25, 30 and 35. However, when your youngest child is older than the last age of distribution (35 in the previous example), you have new options concerning the disposition of your assets; you may, in particular, wish to make changes as to the beneficiary designations on your retirement accounts. Specifically, although you typically will continue to name your spouse as your primary beneficiary on your retirement accounts, you may now want to name your children as contingent beneficiaries. This was typically not the desired option when your children were younger because you did not want them to receive their entire share all at once.
2. As your children get older, you may want them to assume increasing duties under your estate plan.
Oftentimes, an estate plan is first set up when the children are minors. At that age, they cannot serve in the capacities of a personal representative, trustee or a power of attorney, and you may not want them to serve in certain or all of these roles until they have attained a certain age well past 18. When any of your children reach the age that you think they would be the best person to serve in specific roles in your estate plan, you should consider updating your estate plan.
3. The circumstances of your beneficiaries have changed.
Have any of your beneficiaries: (i) suffered from drug or alcohol abuse issues such that receiving any amounts under your estate plan could finance their addiction; (ii) become disabled and entitled to government benefits; (iii) done so well financially that they no longer would benefit from a gift under your estate plan; or (iv) died? Changing circumstances of your beneficiaries is a frequent reason to revisit your estate plan.
4. The circumstances of your appointed representatives have changed.
Has your primary personal representative, trustee or power of attorney developed health issues, moved away or been presented with other challenges such that he or she is no longer the best person to serve in a particular role under your estate plan? If so, it is time to update your estate plan.
5. Estate tax law changes.
If you designed your estate plan to account for federal tax law provisions, you should review your estate plan design with your estate planning attorney when the estate tax laws change.
6. Your financial circumstances have changed.
We are all living longer. Some of us will live beyond our assets. Many more may worry about this event. There are special planning techniques that can be employed to protect the assets for spouses and heirs in this situation. This is a very specialized area of law that is typically referred to as “elder law”.
7. You moved your residency to another state.
Although a move to another state does not automatically require redrafting a trust, it is best for health care powers of attorney and durable financial powers of attorney to be drafted pursuant to the laws of the state where they are most likely to be exercised, i.e. where you are a resident. Although such documents drafted in one state should be respected and followed in another state, it is best to use a document that will be familiar to the ones who are being asked to follow its instructions, e.g. a health care provider in the case of a health care power of attorney. If you purchased real estate in the new state you now call home, without deeding it into your trust, you will also need an attorney licensed in that state to prepare a deed transferring that real estate into your trust.
8. Your assets have changed.
If you have a trust as part of your estate plan, one of the most important steps you need to accomplish to transfer assets into the trust. This is referred to as funding the trust. If you opened new accounts or purchased real estate after you signed your estate plan, and you did not place those assets into the trust at that time, you should work with you estate planning attorney to make sure that all those assets are either placed into the trust or appropriate beneficiary designations are executed and filed.
When you do NOT need to update your estate plan?
Some events are not significant enough to require amending your estate plan. However, updated information regarding these events should be included when other updates are desired.
1. Address changes of beneficiaries.
Addresses are mostly included in estate plan documents for identification and notices purposes. The one exception is a health care power of attorney. It is important that all the information in that document is kept current, especially if the signatory is going through health issues. You want to make sure that the health care practitioners that are being asked to rely upon its provisions are familiar with its provisions. This will most typically be the case when the document is drafted according to the laws of the state where the person lives.
2. A child gets married and changes his or her last name.
Keep in mind that your estate plan is designed to meet the goals you have expressed to your attorney. As circumstances change, your goals may change as well.
You should review your estate plan annually or at least every few years to determine whether changes may be appropriate.