By Peter Reiss
When Should You Review Your Estate Plan?
Once you have created your estate plan, it is important to keep it up to date. The Coronavirus pandemic is causing many to review their Wills, trusts, living Wills, health care powers of attorney and advance health care declarations (living Wills), but there are other key life events which should trigger consideration of revising your estate planning documents.
First or subsequent marriage
You will need to update your estate plan after you get married. A spouse does not automatically become your heir once you get married. Depending on state law, your spouse may be legally entitled to receive one-third to one-half of your estate upon your death, and the rest will go to other relatives. You will need a Will to specify not only how much you wish your spouse to receive, but also whether your spouse is to inherit specific assets. Note: Spouses may by valid prenuptial agreement determine specifically what each spouse would receive in the event the other spouse dies; depending on the agreement’s provisions, it may override state law provisions providing for a minimum percentage share for a spouse.
There are other “non-testamentary” (outside your Will) ways to leave assets to a spouse, for example, titling assets in joint names or naming your spouse as a beneficiary of an investment or bank account, retirement plan or insurance policy.
If your marriage is not your first one, you and your new spouse should discuss where each of you wants your assets to go at either of your deaths. This is particularly important if either of you has children from a previous marriage. While most people want to assure that their spouses are provided for, there is no guarantee that if you leave your assets outright to your new spouse, he or she will provide for your children after you are gone. Besides amending your Will, there are several non-testamentary options to consider. These include, for example, making lifetime gifts; creating trusts for your children; creating a trust that pays income to your spouse for his or her lifetime and then pays the “remainder” to your children; making your children beneficiaries of life insurance policies or retirement plans; or making a child a joint owner or successor (upon your death, by “TOD” or “POD” designation) owner of certain assets.
Even if you don’t have children, there may be family heirlooms that you wish to keep in your family. You can make special provisions in your Will to insure that this will occur.
I often tell clients with minor children that naming a Guardian for a minor child is the most important decision that they will make in their Wills. If you do not name someone to act as a legal Guardian for your minor child and the child is entitled to a share of your probate estate, a Court must appoint a Guardian, which could be an institutional trustee who will receive an annual fee for serving. Because the Court does not know your children like you do, and does not know the other significant people in your family or your close friends, the person that the Court may choose may not be the one that you would have chosen. In addition to naming a Guardian, you may also wish to have your Will set up a Trust for your children so that they are provided for during their minority and later. I often draft trusts that distribute assets to children incrementally as they reach certain ages. Of course, the Trustees in such Wills are generally authorized to use trust assets in the Trustees’ discretion at any time for a child’s health, education, maintenance and support.
Another time to consider updating your estate plan is when your children become adults. Obviously, an adult child will no longer need a guardian, and a child at some point may not need a trust. You may want your children to act as Executors or Trustees, or as Agents under your Power of Attorney. The birth of a grandchild may also be a good reason to review your testamentary plan.
Sometimes it is not necessary to make changes. For example, once your children no longer need a Guardian, it is not necessary to revise your Will to remove the provision that appoints a Guardian. That provision is unnecessary and will simply be ignored. If your child is a beneficiary of a trust that terminates when he or she turns 35 and then pays the assets outright to the child, you do not need to amend your Will when your child attains age 35; the assets would be paid directly to your child.
Divorce or Death of a Spouse
If you get divorced or your spouse dies, you will need to review your entire estate plan, including your Will, your power of attorney and your various beneficiary designations. Depending on how you structured your Will in the first place, it may not be necessary to draft new documents. For example, your Will may provide that your assets go to your spouse at your death; but if your spouse does not survive you, the assets will go to your children. Under these circumstances, it may not be necessary to revise your Will. However, if your spouse is named in some other capacity in your estate plan, for example, as executor, trustee or as Agent under your Power of Attorney, changes may be warranted. Your Will or Trust or Power of Attorney may provide for successor fiduciaries in the even that your spouse can no longer serve, and in this case, it may not be necessary to revise your documents. However, it is advisable to review all documents just to be sure that changes do not need to be made. This is also the case for the beneficiary designations on your retirement plans and insurance policies.
Increase or decrease in assets
One part of estate planning is estate and inheritance tax planning. When your estate is small, you don’t usually have to worry about federal estate taxes because only estates over a certain amount ($11.58 million in 2020; double that for married couples who have not made taxable gifts) are subject to federal estate tax. As your estate grows, you may wish to create a plan that minimizes these estate taxes. If you have a plan that focuses on federal estate tax planning but you experience a decrease in assets, you may wish to change your plan to make it more flexible.
Other reasons to review your estate plan, and possibly draft new documents, include (i) moving to another state; (ii) changes in federal or state estate or inheritance tax laws; (iii) a guardian, executor or trustee that you appointed is no longer able to serve; and (iv) you wish to change your beneficiaries or the manner in which they inherit your assets. In any event, I recommend that clients review their estate plans at least every three years to be sure that their plans continue to reflect their needs and expectations.
This article is not legal advice and is provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction.