By: Randall A. Denha, J.D., LL.M.
If you haven’t picked up and reviewed your estate planning binder in years then it’s probably time you did. An estate plan should generally be reviewed after a major life event, such as birth, marriage, or death. But even apart from these events, you should monitor and revisit your estate plan periodically (at least annually) to ensure it achieves your goals.
Your estate planning attorney, your tax advisor, and your financial advisor are your go-to people when revisiting your estate plan – especially when any of the following events occur:
1. Annual Maintenance and 3 Year Review. If it’s been at least one year since you’ve glanced at your plan, or three years since your most recent estate plan tune-up, it’s time for another look. Besides major life events, tax laws change (more often than you might think). Portfolio values fluctuate, and your own goals for the future evolve.
2. Changes in Your Family. Birth, death, marriage, and divorce are the big ones. Any of these should cause you to revisit your estate plan, and may prompt a revision. New beneficiaries might be added because of a birth or marriage. They might be removed due to a death. Divorce further complicates things – if your son or daughter gets a divorce, you might want to remove the former spouse from your estate plan but retain a place for their joint children. You also want to keep an eye on who you have designated as your Executors, Guardians, Trustees, Attorneys-in-fact, and Health Care Agents in your Will, Trust, Durable Powers of Attorney for Finances, and Advanced Health Care Directives.
3. Health Issues. Long-term care is a significant medical expense. You may want special provisions in your estate plan to assist family members who might require long term care. For example, I am often including provisions in estate documents which provide for specified loved ones and his/her medical needs in the event of the death of a child or other donor. If your own health needs change, you might also want to give your Trustee specific instructions on the kind of care you want for yourself (for example, perhaps you want to stay in your own home with home care providers – or maybe you would prefer to have your Trustee spend your money on a luxury retirement community – even if those choices deplete what you’ll be able to pass along to your kids).
4. Retirement. Retirement might not instantly affect your estate plan if you’re contemplating retiring in the next 5 years, but there will be an eventual impact. For instance, you may need to begin withdrawing some of your IRA funds to supplement your retirement income, instead of contributing more. This change of direction should prompt a revisit of your estate plan.
5. Family Business. Any business or business interests you own tend to evolve, as does the market itself. For instance, you might convert a Sole Proprietorship to an LLC or a Corporation, or a partnership might transform into an LLC or S-Corp. Those are as significant as a personal change in your family itself. There are numerous tax benefits to the right choice of entity and knowing all options can not only save you money, but also your heirs in the long run.
6. Performance of Portfolio Investments. A significant fluctuation in the total value of your estate – say +/- 20% since the last time your estate plan underwent a review, should probably prompt another review. Consult your estate planning attorney and provide an updated summary of your assets & liabilities. Discuss gifting excess assets to family members (e.g. children, grandchildren) as a possible means of reducing or eliminating estate taxes upon your death and consider doing so in trusts to protect such beneficiary from their inability, disability, creditors and predators.
7. Philanthropic Interests. Leaving a portion (or all) of your estate to charity may require restructuring your estate plan using charitable trusts or donor advised funds as planning vehicles. These, too, can provide some long-term or immediate tax benefits.
8. Purchase of Life Insurance. Buying a life insurance policy can seem straightforward, but you might want to transfer ownership of the policy to a life insurance trust, so the value is kept out of your estate. If you already have an irrevocable insurance trust, you’ll want to ensure that you comply with any annual tax requirements (e.g. “Crummey Notices”, Gift Notices, or Gift Tax Returns).
9. Proper Funding of Your Trusts. A revocable trust needs to have proper “funding” which is lawyer-speak to say that certain assets should be “retitled” into the name of the trust, so that the trust controls your assets. For example, if you’ve opened new investment accounts or acquired more real property, you might need to retitle them into the name of your trust – or if you’ve set up new life insurance policies or retirement accounts, you might need to update your beneficiary designations.
10. Other Events. Changes in tax law, inheritances, employment, educational needs, and state-to-state relocation can create otherwise unexpected reasons to revisit your estate plan. At a minimum, consulting your estate attorney is a sound idea.
While there’s a cost associated with revisiting and/or revising your estate plan, the greater cost is usually in leaving it untended, and that cost can be both very tangible and quite personal. Most estate planning attorneys offer an annual maintenance plan or an annual review meeting to help offset these costs, reduce the guesswork, keep your estate plan up to date, and deliver peace of mind. An estate maintenance plan can provide you the necessary push to ensure you do the regular checkups a sound estate plan really requires, while spreading the costs over a period of time, with a regular, predictable annual fee. It’s your estate attorney’s way of proactively looking out for you, and helping you look out for yourself and your loved ones.
THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION. THE MATERIAL IS BASED UPON GENERAL TAX RULES AND FOR INFORMATION PURPOSES ONLY. IT IS NOT INTENDED AS LEGAL OR TAX ADVICE AND TAXPAYERS SHOULD CONSULT THEIR OWN LEGAL AND TAX ADVISORS AS TO THEIR SPECIFIC SITUATION.