You completed a will and perhaps a revocable living trust. You’ve set up a durable power of attorney for health care and a living will, and all of your records are organized.
So you’re finished with your estate planning, right? Maybe, maybe not. Change is inevitable, changes in family circumstances may mean you need to review your plan. Here are some of those reasons.
1. New Children, Grandchildren or Other Heirs
Your estate plan probably provides for children and other heirs. If you have a specific amount transferring to one child, the arrival of a new child may lead to the new one receiving less than you had intended. Any uncertainty could lead to litigation or family strife.
If you have a sizeable estate with large specific bequests, the arrival of a new heir is a good time to review your plan. One option is to transfer assets to the heirs “then living” when you pass away. You may also want to plan for heirs who are minors or very young adults who might not be able to manage that inheritance yet.
2. Move to a Different State
If you’re married and move to a different state, there may be differences in laws that affect ownership. Some states are “common law” property states, and some are “community property.” If you move from one state to another and change in either direction, it may be important to clarify the ownership of your property as separate property or joint property.
There may also be a significant difference in estate or inheritance taxes. Several states have inheritance taxes that apply at lower levels than the federal exemption per person. Depending on who among your relatives receives your property, a new state may have a substantial tax.
Finally, many states have specific rules on durable powers of attorney for health care, living wills or advance directives. Your doctors will expect that your medical planning documents reflect the law where you live.
3. Sale or Purchase of a Major Asset
You may have a major real estate asset or a business to be transferred to one of your heirs. If that property is sold or substantially increases in value, your entire plan could change. For example, if a property goes up in value and there’s a large estate tax to be paid out of the residue of your estate, the beneficiary of the property could receive a larger inheritance than you had intended while the heirs to the residue could find their inheritance greatly reduced.
4. Reaching Age 70½
The four types of estate property are cash/cash equivalents, stocks, real estate and qualified plans. Over the years, your qualified retirement plan may become a large portion of your estate. Your IRA, 401(k) or other qualified plan require distributions to start on April 1st of the year after you reach age 70½.
If you pass away before the entire plan is paid out to you, the balance is transferred to your designated beneficiary. Because retirement plans have grown substantially over the past decade, it’s important to review your beneficiary designations, and age 70½ is a logical time to do so.
5. Your Selected Beneficiary Is Deceased
It’s common for unmarried individuals to remember their surviving brothers and sisters in their plans. However, if you are remembering a sibling in your plan, it’s possible that they will pass away before you do. In that case, it is important to revise your plan and select a new recipient of that share of your estate.
6. Divorce or Remarriage
Estate plans for single people are quite different from those of married couples. A single person who transfers assets to a former spouse will not qualify for the unlimited marital deduction. While property settlements are typically handled during the dissolution of marriage proceedings, it’s important to remember to change beneficiary designations on retirement plans and insurance policies. If you later remarry and are survived by your new spouse, there’s a good chance of litigation between your ex-spouse and your new spouse if you forgot to update your beneficiary designations.
7. Substantial Change in Value
If someone’s estate increases or decreases significantly in value, that can impact your beneficiaries. Therefore, you should revise your plan so it remains in line with your intentions.
8. Adding a Major Property to a Living Trust
If you have a substantial estate, you may hold your real estate in a living trust. If you invest in real estate or acquire a major new property and transfer it to the living trust, that could increase the benefits for heirs of the trust compared to the rest of your heirs.
9. Selected Executor or Trustee Not Available
With a will or a revocable living trust, you may also select a successor executor or trustee. While this usually resolves any situation in which the primary executor passes before you, it’s still a good idea to review your plan if this happens so you can select a new primary executor or trustee and an appropriate backup person.
10. Passage of Time
Estate plans are affected by changes in your asset value, changes in your family, and changes in federal or state law. Therefore, it’s a good idea to sit down with your attorney and review your plan every three to five years.