Updating Your Estate Plan: Signs Your Long Past Due
So, you signed a will a few decades ago and don’t want to think about estate planning because estate planning is less fun then getting a root canal. Estate planning, you think, is about dying and that’s not particularly enjoyable. It’s also complicated stuff and you probably have to pay a lawyer. And perhaps the most common reason folks ignore their planning and documents is golly “nothing has changed.” As an estate planner I always wonder how people rationalize ignoring the need to update their planning and documents long past when common sense would seem to dictate otherwise. It is perhaps the norm that folks don’t call their estate planning attorney until well after their existing planning and documents are so outdated as to be dangerous.
Reality Check: Stuff always changes. If your documents are more than a couple of years old, get a checkup.
You Really Should Review Your “Stuff” Annually
Here’s the right answer you don’t want to read (hear) you really should meet with your estate planning team every year. That team should include your CPA, estate planning attorney and wealth adviser. The cost of doing so is dramatically less than most realize and being able to set up a quick web meeting makes it much less costly and more efficient then the old-style in person meetings. If you really cannot afford the cost of annual meetings, you can mimic the gold standard approach of a collaborative multi-adviser team meeting by meeting with whatever advisers you use, and if none address the points each would address. But really, as your wealth/income increase the annual review is money well spent.
Reality Check: Get an annual review of your entire plan with your advisory team.
OK, So You’re Going to Ignore the Annual Meeting Advice
Most people ignore the recommendation of an annual review meeting (at their peril!) so let’s look at some of the specific reasons why you might need to update your planning. Perhaps that might motivate you to at least review your planning if you see a specific reason to do so. We’ll also explore some of the seemingly endless excuses people use to avoid addressing important issues. Also, there are a myriad of misconceptions about the estate planning process that tend to put folks off. We’ll address some of those too.
Reality Check: If you experience a material change in your finances, family, or other important factors, review your plan and documents.
When There May Be/Is A Change in the Law
In 2020-2021 there were a boat load of significant tax law proposals. That was a reason to jump and do planning. Why? Because had any of those proposals been enacted they would have precluded lots of common tax planning strategies. Certainly, any time there is a proposed change in the law you should get on the horn and speak to your advisers about what you should do. Similarly, when a law is changed, you should speak to your team about what you need to do considering whatever changes were enacted. And changes in the law extend well beyond just tax law changes that make media headlines. New York changed its power of attorney law a few years ago and if you’re in New York its worth asking your adviser if you should get an updated power of attorney (document hat appoints a financial agent to handle financial and legal matters if you cannot do so). Florida just recently enacted legislation that gives a spouse the right to appoint assets in a spousal lifetime access trust (SLAT) (a commonly used estate and asset protect technique) back to their surviving spouse. That could be a biggie so if you live in Florida call your estate planner. So, hopefully you get the point.
Reality Check: Any law change that may be significant to you (federal, state, tax or otherwise) proposed and the enacted, may be reason enough to review the status of your planning and documents.
Styles and Techniques Change
Are you still wearing a green Nehru jacket? What about a polyester leisure suit? Hopefully not! Well just like styles change, legal planning techniques, drafting styles and mechanisms all evolve. Perhaps a decade ago it was common to see trusts end when a beneficiary reached say age 35. Now, it is much more likely that a trust will continue as long as state law permits. It is also more common that if your state law limits the duration of trusts that you might create a trust in a state that permits longer term trusts. This more modern approach to drafting trusts preserves estate tax benefits. That could be really important considering that the exemption amount will be cut in half in 2026. It also provides better divorce protection for your heirs. That’s important given the approximately 50% divorce rate. Consider the affect of old-style trust drafting on just that one issue – divorce. If the trust pays out all assets to your child at age 30, I’d bet a nickel that the odds of the kid getting divorced at age 31 just got higher. If the trust instead keeps assets in the trust forever (and that doesn’t mean your child cannot benefit from the assets, they just stay protected), divorce at any age may not reach the trust assets.
Reality Check: Even if “nothing has changed” in your view of your estate plan, estate planners hone their skills and create new planning techniques (and acronyms) all the time. You might want to get in on those new ideas. Whether or not it is worth the cost or bother will depend, but if you don’t ask you cannot know.
Major Life Milestones May (or May Not) Require Updates
Most articles about when you should update your planning recommend that you do so when a major life milestones occurs. These might include:
· Moving to a new state so that new laws may govern your documents.
· Purchasing any asset that is a substantial value relative to your net worth. Just buying a house may not matter. If you’re worth $50 million and buy a $2 million house it is probably academic (unless its in a different state and may accompany a change in residence). While a residence may not change anything in your estate plan, it might be important to see if the way the house is owned (titled) comports with your plan. If your will makes a specific bequest of the house, then changing the house could be pretty important to address.
· Getting married or divorced. Yep, this is a major life event, but if marriage is contemplated, let alone in the works, call your advisers yesterday! Yes, it might well be that you will need to update your estate planning documents if you get married. But if you don’t call your estate planner after your marriage you may have missed the opportunity of getting a prenuptial agreement, funding irrevocable trusts and other significant steps before the marriage.
· Getting divorced is another one of those life altering/plan altering events. But just like marriage above, while you may need to make changes post-divorce, if you don’t bond with your planning team before the divorce, you might miss out on huge planning opportunities. There may be triggers in trusts that can be pulled to protect them much better before the divorce begins.
· Those ubiquitous articles on when to update your will always advise that you do so (yawn!) after having children or grandchildren. But if you were on top of your planning before the birth, and if your planning was done with the flexibility many plans have for future events, you might not need to do much (perhaps other than set up a new 529 plan). Why? Because most wills and trusts are drafted to anticipate the birth of future descendants. So, it is likely worth the cost of a quick consult, but this often-touted event, may require no action.
· Reality Check: The above points make it pretty clear that the standard filler articles on updating your planning often miss the point. What will really require a change, and when that change could be quite critical, is not always obvious. Often what is really important to do may be uniquely dependent on your circumstances. This is why the best option is to ask your advisers if any action might be beneficial. In many of the situations most anticipated to require change, none may be required. In circumstances that obviously should and do require change like divorce or marriage, following the usual advice articles may have you late for lunch. Finally, situations that you cannot predict or discern (like a new planning or drafting technique) might be the most beneficial for you.
· Advanced age or health issues. But these are in the same category as marriage and divorce. If you wait for the event to occur you may have already missed the boat. The time to plan for cognitive issues and the risks of elder financial abuse, are while you are competent and before you’ve been taken advantage of.
· Reality Check: This is why regular meetings when “nothing has changed” is really the prudent step to protect you and enhance the likelihood of your goals being met. And try this on for size, it may in fact be cheaper (yes really) to meet regularly. Consider changing the oil in your car. You can change oil every 5,000 miles and not have an issue. You can wait until that red dummy dashboard light flashes, and then ignore it until you hear funny noise. At that point, the repairs will be more costly than the regular oil changes. It is no different for estate and financial planning.
· A significant liquidity event like the sale of a major asset (e.g., a valuable rental property) or your family business. But this, just like marriage, divorce, or elder financial abuse, may be too late. If you plan before the sale of the family business you might be able to value the interests at much less than the actual sale (but that may be before you have groomed the business for sale and started to market it). That could be a tremendous benefit as it may facilitate your shifting more value outside your estate. Alternatively, you might donate some of the equity interests in the business to a charitable remainder trust (CRT) before the sale. That might help you defer substantial capital gains tax. But that too must be in advance of the liquidity event.
· Changes in your assets may trigger a need for an update. When consumers see this point, they get it. Right! If your estate doubled in size your will and perhaps tax plan might need an update. But assets changes requiring change (or not) might be more subtle to parse. Let’s say you moved all your financial accounts to a new institution. Nothing has changed (the mantra of most consumers who choose to ignore planning). You have the exact same net worth and assets. You just moved them from wealth manager A to wealth manager B. So, no change is necessary. Right? Well, the correct answer to that question is the ubiquitous answer lawyers give to every question: “It depends.” Just because the dollars are exactly the same doesn’t assure you that you don’t need to update your plan. What if at wealth manager A all your accounts were joint with your spouse. That meant on the death of either of you the survivor took all the assets. Now you moved to wealth manager B and they retitled all assets to just your name. That could completely change your estate plan. Now, all assets on your death pass under your will (meaning probate) and nothing transfers automatically to your spouse. That is a dramatic change. So, do you need to update your plan? “It depends.” The first plan might sound better but that is not clear. If you want assets to pass into trusts under your will (or revocable trust) to protect assets of your surviving spouse, or if tax planning requires funding trusts on your death, etc. the second plan may be preferable. What did each wealth management firm do to your state income tax profile? What about revisions to your beneficiary designations for your retirement plan?
· Reality Check: So, changes in assets can trigger a need to update your estate plan and documents, or not. But it could be subtle changes that may not be obvious to consumers, and even many advisers.