Death is an unpleasant topic to talk about, which is why most people either don’t have an estate plan in place or what they do have needs updating. In fact, only 55% of those 55 and older have a will and a mere 18% have all the recommended essentials—a will, healthcare directive, and durable power of attorney.1 Many don’t know where to start and for those who have documents that might be outdated, reviewing them can feel daunting. It’s easy to defer giving this the proper attention until we (or someone we know) experience a health event. And sometimes…it’s too late. Below are 6 important considerations when determining if any updates are needed.
#1: Life Changes
The most common reason to update your estate plan is a major life change. The following are just some examples.
- Birth of child
- Diagnosis of a child’s special need
- Substance abuse or incarceration
- Move to another state
Any such changes warrant revisiting your documents. Part of estate planning is reviewing the beneficiaries you have for life insurance policies, IRAs and other retirement accounts, annuities, payable or transfer-on-death (POD or TOD) accounts, as well as revocable trusts. Contrary to what many believe, these assets do NOT go through your will. So, your beneficiary elections ultimately govern who gets what.
One quick note on moving out of state. Each state has its own laws whether it’s the number of witnesses required to validate a will or how much a spouse must inherit. Some have inheritance or estate taxes, although most do not. State laws vary on powers of attorney, advance medical directives, living wills, and more. Make sure your estate plan complies with local laws and regulations.
#2: Named Persons/Roles
Do you remember who you’ve selected for all the important roles in your estate plan, both as primary and successor to the primary, to carry out important decisions on your behalf? Are they still the right people?
If you have children who are minors, the guardian(s) will be entrusted to raise them and pass on values that are important to you. The executor will carry out the terms of your will and see to it that all your assets get properly distributed. If you have a trust set up either during life or through your will, the trustee will be responsible for enforcing the terms you’ve set and make decisions on certain distribution requests. If you are incapacitated, agents for healthcare will be responsible for medical treatment or life decisions while a durable power of attorney enables someone to make legal and financial decisions such as manage bank accounts, bills, and investments, file tax returns, and buy or sell property.
It’s important to revisit these roles regularly as people age, move away, relationships change, or someone else simply becomes better suited to serve. If you don’t maintain updated documents, you run the risk of a less than ideal person serving or the courts appointing someone you would not have chosen.
#3: Changes in Assets or Liabilities
Do you have a significantly higher or lower level of financial assets than when you last finalized your estate documents? Is the composition of those assets materially different such as the value of your retirement accounts, other investments, or property...or maybe you’ve started or sold a business? Have you paid off a mortgage or bought or sold property, which may result in certain beneficiaries ending up with more or less than you intended? It’s a good idea to regularly update a diagram of what assets flow where and what the ultimate disposition looks like.
They say a picture is worth a thousand words, and we just talked about illustrating where your assets go. This picture gives you a chance to make sure your plan is intentional and aligns with what’s important to you. Do you want your children to receive equal inheritances, or do you feel one should receive more than another because of financial need or some other reason? If you’ve amassed more financial wealth than anticipated, do your children or other beneficiaries stand to receive more than you’d like? Have your charitable intentions changed? There are many intentions we have that can and often do change over time.
#5: Tax Law Changes
Legislative changes to tax law can also result in unintended consequences. For example, Congress could lower the federal estate tax exemption amount and your estate could either be subject to more estate tax than you planned for or it could affect the funding of certain trusts through your will. In such a scenario, you might want to reevaluate the trusts you have set up for your beneficiaries. You might also consider giving more to charity if you’re charitably inclined and want to reduce your potential estate tax liability. There may be estate planning considerations both before and after any such legislation is enacted to ensure your estate gets passed on the way you want.
#6: Post-Mortem Letter or Letter of Intent
One of the most helpful documents for your heirs is something that technically isn’t even part of your estate plan, although it’s highly recommended. Wills and trusts have legalese and do a good job conveying the what, but not the why. You might have left uneven bequests to your children but want them to understand your thinking. You might have certain provisions in a trust for your beneficiaries and want the trustee to better understand how you’d like certain decisions carried out. In addition to terms of your will or trust, you might want your beneficiaries to know where certain documents are kept, login information for your computer or to various financial institutions, or simply how you hope their inheritance might benefit them and/or future generations. A comprehensive document such as this is referred to some as a Post-Mortem Letter, and a document specifically for trusts is called a Letter of Intent. Your beneficiaries are going to have a tough enough time as it is with your death. Leaving behind such instructions makes it much easier for your executor, trustee, and beneficiaries to all carry out your wishes and potentially your legacy.
Journey Beyond Wealth is an Investment Advisor registered with the State(s) of GA, TN, LA. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy, or the completeness of, any description of securities, markets or developments mentioned. This content may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.