Estate Plan Updates: Why They Matter and When to Make Them

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The worst estate planning mistake you can make is failing to have a plan.

The second worst mistake is assuming that if you have a plan, you’re done.

The truth is that regularly reviewing and updating your estate plan is an absolutely critical part of responsible estate planning. Defining your wishes about what happens to your money and property after you die is not, unfortunately, a set-it-and-forget-it task. Life changes can render various parts of your Will and other estate planning documents out of date, and that can lead to some serious consequences.

What can go wrong?

While there are plenty of ways that outdated estate planning documents can cause small annoyances and minor inconvenience, there are three big ways they can seriously impact your plans.

The wrong people could wind up inheriting your estate

Failure to keep your Will updated after major life events could give the courts cause to revoke it, meaning your estate would be distributed according to general state laws instead of your specific wishes.

Take, for instance, the case of Alex whose father Richard passed away having not updated his Will since he married his second wife in 1990, whom he subsequently divorced. Because Richard had executed his Will prior to January 1, 1997 and had since divorced, his Will was revoked, which meant Richard died intestate (without a Will). Because of this, Richard’s estate was divided up between Alex and his brother, James, whom Richard had chosen to disinherit. Unfortunately, there was nothing Alex could do. Because the Will was revoked and the state laws were as they were, James had full legal right to half of the estate, even though that’s not what Richard intended.

Taxes could eat up a substantial percentage of your estate

They say the only two constants in life are death and taxes, and the two of them together can cause quite the calamity. After her husband died, Jennifer moved from Indiana to Connecticut to be near her children. Unfortunately, she didn’t account for the fact that, unlike Indiana, Connecticut has a state estate tax.

Jennifer’s estate of $4 million was well below the federal estate tax exemption amount ($5.49 million per individual in 2017), but above the $2 million state limit. Therefore, upon her death, $2 million of her $4 million estate was subject to a hefty 12% tax. Had Jennifer known, she could have taken steps to make sure that money–nearly a quarter of a million dollars–went to her children rather than the state.

Estate-related conflicts could tear your family apart

Last but certainly not least is the way incomplete or obsolete estate planning documents can put immense strain on the relationships between surviving family members who find themselves in an unmoderated and bitter battle of Who Gets What.

This kind of situation can be especially complicated for blended families and often leads to irreparable feuds. When they married, Kathy and Bill each brought two young children from previous marriages into their blended family. When Bill passed away, all his assets went to Kathy, as directed in his Will. However, when Kathy died, her estate went to her biological children only because she didn’t realize that stepchildren were not legally considered “children” and therefore didn’t automatically get an inheritance.

Though they grew up as close siblings, years of litigation tore the family apart. The stepchildren’s attempt to make a claim on Kathy’s estate strained the relationships beyond repair. Even after the ordeal, the four kids were never able to resurrect the closeness they once had.

When should you update your estate plan?

There are some universal rules of thumb to determine when it’s time to update your estate plan. For example, if you made the last update three or more years ago you should probably take another look. Likewise, if there have been recent changes in tax or other estate-related laws either nationally or within your state, that’s another good reason to review everything and make sure everything still lines up.

5 More Reasons…

In addition, certain life events and milestones should also trigger a reassessment of your Will and other estate planning documents. Here are a few of the most common triggers:

A Change in the Value or Makeup of Your Estate

Obviously, if there has been a significant change in the value of your assets or liabilities, or if the composition of your estate has shifted substantially, it’s wise to take a moment to review how your estate is divided amongst your beneficiaries. Whether the inciting incident is an overall increase or decrease in value or the transformation of one kind of asset into another (liquidating a business or piece of real estate, for instance), it’s worth taking the opportunity to make sure everything is still allocated as you choose.

A Change in Which State You Call Home

Because estate-planning laws are written at the state rather than the national level, moving from one state to another means you could be operating under a whole new set of laws. Some state-to-state differences may be minor, such as the required signatures to validate a Will, but others might render your wishes null and void. The aforementioned estate tax is one such example, but there are also things like varying minimum requirements on spousal inheritance.

In addition, there are related documents (powers of attorney, living wills, healthcare proxies, etc.) that may also need to be either updated or recreated in your new state. It’s also advisable to establish proof of primary residency because states with inheritance or estate tax may try to retain the right to tax you if they feel your estate still resides in their jurisdiction. Things get a little more complicated if you have multiple residences in multiple states, but a Connecticut estate planning attorney can help you sort out the most advantageous arrangements.

A Change in Your Choice of Executors or Trustees

Selecting executors and trustees is a task most people take too lightly, but these appointments hold a great deal of responsibility and power in the implementation of your estate plan. It’s worth the time to consider your choices carefully after some time has passed. Perhaps the original appointee is no longer willing or able to fulfill the role, or maybe your relationship has changed, or the change might be something as simple as the appointee having moved away.

A Change in Your Relationship with Beneficiaries

While it would be nice if all your relationships remained constant, we know this isn’t always the case in real life. Sometimes, it’s appropriate to make changes—either removing someone completely or changing the nature of their inheritance—such as in the case of a divorce or some other kind of falling out. In other, happier cases, you may find you’d like to add someone into your Will—a new grandchild, in-law, or charity.

A Change in Beneficiary Designations on Retirement Plans

On a related note, while you’re updating your Will is a good time to also update the beneficiary designations on IRAs, 401(k)s, and similar types of plans and assets. Beneficiaries on each of these accounts are designated via a form on file with each plan rather than via your Will or any kind of trust, but getting in the habit of reassessing them at the same time as the rest of your estate planning documents will make sure none of these important details fall through the cracks.

Ready to update your estate plan?

There are a lot of details and variables to keep track of in order to keep your estate plan up to date and compliant with all the federal and state laws, but that shouldn’t stop you from taking the time to make sure your family’s well being is protected and your wishes will be carried out as intended.

Luckily, you do not have to manage all of this on your own. If you have any questions, or if you think it’s time to make changes or updates to your Will or other estate documents, reach out and we’ll be happy to make sure everything is set up exactly as you’d like.

 

Related Posts:

Federal and CT Estate Tax Tension: 2 Big Reasons to Add a Trust to Your Estate Plan

How to Keep the Kids From Fighting Over Their Inheritance

Estate Planning and Disgruntled Heirs: Ways to Avoid the Fight

When an 18-Year-Old Needs and Estate Plan

 

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