Estate planning documents don’t expire with time like a gallon of milk, but they do become obsolete when circumstances change.
Having up-to-date documents is essential, but how do you know when it’s time to make a change?
Here are some of the top reasons to update the will or trust that determines what happens to your assets when you die.
- You got married, remarried, or divorced.
A change in marital status almost always affects what a person wants to do with assets upon death. If you recently married, you will want to define your spouse’s share of your assets in the event you die. State law gives your spouse rights to your estate if you die intestate (without a will) but the state’s scheme may differ from your plans.
If this is your second or subsequent marriage, and you have children from a previous marriage, you certainly could benefit from the advice of an estate planning professional about how to provide for all your loved ones while avoiding the pitfalls that come when a member of a blended family dies.
Divorce automatically removes your spouse as a beneficiary under your will. But you may need to address other issues. If your will names your ex-spouse as executor, who do you now want to serve in that role? Divorce may also change the person you would nominate to serve as guardian of your children. You may even wish to leave some portion of your estate to your ex-spouse, in which case you need to state that in writing affirmatively.
- You had a child.
You just got much busier. Sorry to add to your to-do list, but you really must provide for your child.
As I write this blog post, I am administering the estate of someone who died unexpectedly at age 37, leaving two small children and a sizeable estate. Because she had no will, approximately half of her estate will pass to her children when they turn 18 – probably not the estate plan she would have wanted.
You need to make sure you have a plan in place in case something happens to you. To read about the two provisions your will should contain if you have young children, click here.
- Your kids have grown up.
On the other hand, you may have an old will written when your kids were young that places all the assets you leave them into a trust. That’s a good plan for young children. But if they’re now grown, possibly with kids of their own, you need a new plan.
Chances are that other circumstances have changed. Your assets have probably grown and you are closer to retirement, or to needing long term care. It’s probably time to rethink your entire estate plan.
- Tax laws have changed since your estate plan was written.
Federal estate tax laws have changed significantly in the past few years, and even more dramatically in the past 15 years. If your will contains provisions to address estate tax issues, and it’s more than five years old, you may need an estate plan tune-up.
Many wills have become obsolete because they establish unnecessary trusts meant to avoid estate taxes. While that approach made sense when the exclusion from tax stood at $600,000, it could tie up assets unnecessarily now that the exclusion for an individual exceeds $5 million (unless your assets have also grown dramatically).
- Your choice of executor, guardian, trustee, or beneficiaries has changed.
A will prepared 20 years ago may need no updates if you would still name the same people as beneficiaries, executor, trustee, and so on. On the other hand, a two-year-old will could have outlived its usefulness if your choices have changed in the meantime.
I advise clients to review their estate planning document once a year to make sure they would still make the same choices today. If you have changed your mind, it’s time for a revision.
If the change is minor, you may not need to redo the entire document. An amendment (called a “codicil”) can do the trick.
- Your assets have changed significantly.
Substantial changes in assets often trigger the need for estate plan updates.
If you have inherited or earned significant enough funds to exceed the estate tax exclusion amount (over $5 million per person), you certainly need to have a plan to minimize estate tax. If the growth is not that large, you still may have tax issues such as capital gains that could be addressed with the right estate plan. Or your plan for distribution may have changed in light of your good fortunes.
Significant decreases in assets may also mean it’s time to re-examine how your assets are distributed. For example, you may want to re-think your plan to leave $50,000 to each of your seven grandchildren, and the rest to your three children, if your assets have shrunk from $1 million to $400,000.
- Your spouse qualified for Medicaid.
Qualifying for Medicaid to pay for nursing home care significantly affects a couple’s assets and signals an urgent need for estate plan changes.
In my experience, a married person’s will almost always leaves the entire estate to the surviving spouse. If your husband or wife is now in a nursing home on Medicaid, you almost certainly have placed most of the marital assets into your name alone during the qualification process. If you die first and it all passes to your spouse, he or she will need to spend down significant sums before qualifying again.
You can limit spend-down, in the event you die first, by changing your will or trust. See an experienced elder law or estate planning attorney for advice on how to do that properly.
Get good advice
These are not the only reasons to update your estate plan, but they are some that I see most often in my practice.
No matter what the reason, I recommend seeking out a qualified professional for assistance with your estate plan update.
One good way to learn about estate planning and asset protection is to attend our frequently held workshop “How to Have a Great Estate Plan.” Click here for upcoming dates and times.