Updating your estate plan: when and why

Every estate plan needs to be updated every so often to ensure that all your purposes are being fulfilled throughout the family, property and business changes that take place over time. And each estate planning attorney has a different idea about how often your plan should be changed and what events should trigger those changes. Some attorneys want their clients to amend their documents every year, while some say every 3-5 years gets the job done. Now, I won’t lie and say it wouldn’t improve my bottom line to have each of my estate planning client’s come in and amend their plan documents each year, but I employ a review-and-amend policy that I think addresses the major changes in my clients’ lives.

I tell my clients that we should speak and review their estate plan every year, just to go over the major issues, so that I can discuss their family and property changes with them and determine if amendments are needed. Then, if we determine there is a need, we make amendments to the plan to address those changes. With this approach, I can keep my clients’ fees lower, but still ensure their estate plans keep up with the changes.

What events will trigger a need to amend a client’s estate plan? Any major life change, for the client or the client’s beneficiaries (recipients of property), would trigger the need for an updated estate plan, such as the things listed below:

Marriage, birth, and adoption: Updating the estate plan is essential to include provisions for an inheritance for a new spouse and/or a trust for a new child, (especially if that child is a minor as minors cannot receive property in Texas) or if the client wants to have a specific bequest of property to someone (such a family heirloom to a certain son or granddaughter).

Death, divorce, estrangement: If a client has had a major falling-out with another family member, the client should change the estate plan and beneficiary designations so that a former spouse, deceased sister, or prodigal son do not inherit assets that could be put to better use if given to another family member or another party to manage. Not only can estranged family members inherit under an insufficiently updated plan, but can potentially force costly and time-consuming litigation to settle the estate if the plan is not properly drafted.

Business acquisitions, successful investments, windfalls:  Acquiring or selling a business often requires that a client update the estate plan, to address whether the interest is assigned to a trust or the individual, to ensure proper use of a current estate plan. In addition, very successful investments and windfalls, such as inheritances and lottery winnings. can drastically affect the value and distribution of a client’s estate. Such events often create a need for things like spendthrift trusts, charitable remainder or charitable lead trusts, intentionally defective grantor trusts and others.

Disability, accident and illness: While many people dismiss estate planning because they are in perfect health, the unfortunate truth is that a serious accident or illness can occur suddenly, robbing a client of the ability to take care of themselves or make medical decisions. A proper estate plan gives a client the ability to plan for the unknown, through documents such as directives, which allow clients to make decision regarding end-of-life medical procedures, medical powers of attorney, which allow a client to designate an agent to make health care decision when the client is unable to, and HIPAA release forms, which authorize the client’s named agent to receive medical information. In addition, a standard power of attorney for financial matters would be recommended to handle financial issues if the client is unable.

Incompetence:  As a legal definition, someone is incompetent who, because of temporary or permanent mental deficiency, is unable to manage their personal affairs. While many of the documents listed above will address these concerns for the client at least temporarily, if some issue should arise that is permanent or if something happens to a beneficiary that leads to incompetence, then the estate plan should be addressed. Many jurisdictions do not allow a person who is incompetent to receive or manage assets, so a client’s plan needs to be reviewed if anyone designated to receive any property or power under the plan has this unfortunate situation arise.

Law changes:  In today’s political environment, you can’t be certain of much except the uncertainty. Over the last 12 years, the federal estate tax exemption (amount a person may give away at death without having to pay taxes on the estate transfer) has ranged from $675,000 to over $5 million. The gift taxes and GST (generation skipping transfer) tax have likewise gone up and down. In addition, some positive changes, such as portability, have been introduced lately to ease tax burdens.

These are but some of the many reasons to revisit a client’s estate plan every year. Let us know how we can help you update yours, and make sure your plan goes as you want it to, and with the best result for your loved ones.