Life Events that Require an Immediate Estate Plan Update

15 Nov Life Events that Require an Immediate Estate Plan Update

Estate planning is the process of developing a strategy for the care and management of your estate if you become incapacitated or upon your death. One commonly known purpose of estate planning is to minimize taxes and costs, including taxes imposed on gifts, estates, generation skipping transfer and probate court costs. However, your plan must also name someone who will make medical and financial decisions for you if you cannot make decisions for yourself.  You also need to consider how to leave your property and assets while considering your family’s circumstances and needs.

Since your family’s needs and circumstances are constantly changing, so too must your estate plan. Your plan must be updated when certain life changes occur. These include, but are not limited to: marriage, the birth or adoption of a new family member, divorce, the death of a loved one, a significant change in assets, and a move to a new state or country.

Marriage: it is not uncommon for estate planning to be the last item on the list when a couple is about to be married – whether for the first time or not. On the contrary, marriage is an essential time to update an estate plan. You probably have already thought about updating emergency contacts and adding your spouse to existing health and insurance policies. There is another important reason to update an estate plan upon marriage. In the event of death, your money and assets may not automatically go to your spouse, especially if you have children of a prior marriage, a prenuptial agreement, or if your assets are jointly owned with someone else (like a sibling, parent, or other family member). A comprehensive estate review can ensure you and your new spouse can rest easy.

For example: John has a trust with his children as the beneficiary. John marries Sally but still wishes for his assets to be distributed to his children.  He doesn’t want to change the beneficiaries on his trust, so he doesn’t think he needs to contact his attorney for trust changes. At John’s death, Sally may have a claim as an omitted spouse to some or all of those assets. What he should have done was amend his trust to provide that he is now married, but everything else remains the same. This would let the world know that his intent was to keep the beneficiaries the same although his marital status has now changed.

Birth or adoption of children or grandchildren: when a new baby arrives it seems like everything changes – and so should your estate plan. For example, your trust may not “automatically” include your new child, depending on how it is written. So, it is always a good idea to check and add the new child as a beneficiary. As the children (or grandchildren) grow in age, your estate plan should adjust to ensure assets are distributed in a way that you deem proper. What seems like a good idea when your son or granddaughter is a four-year-old may no longer look like a good idea once their personality has developed and you know them as a 25-year-old college graduate, for example.

Divorce: After you have filed for divorce or the divorce proceedings have started,  you should immediately update beneficiary designations for all insurance policies and retirement accounts, any powers of attorney, and any existing health care proxy and HIPAA authorizations. It is also a good time to revamp your will and trust to make sure it does what you want (and likely leaves out your former spouse).

The death/divorce of a loved one: sometimes those who are named in your estate plan pass away or get divorced. If an appointed guardian of your children dies or divorces, it is imperative to review your estate plan. Likewise, if your chosen executor, health care proxy or designated power of attorney dies, new ones should be named right away.

For example, John names his brother and sister in law (Brother’s wife) as guardian for his children. His brother files for divorce. John may not want his sister in law to be co-guardians with his brother and their pending divorce may alter the guardianship John envisioned for his children.

For example, John names his brother as trustee and healthcare agent, and his brother passes away. John has not named a successor. John must update his documents to provide for a new trustee and healthcare agent.

Significant change in assets: whether it is a sudden salary increase, inheritance, or the purchase of a large asset these scenarios should prompt an adjustment an existing estate plan. The bigger the estate, the more likely there will be issues over the disposition of the assets after you are gone. For this reason, it is best to see what changes, if any, are needed after a significant increase (or decrease) in your assets. Further, it is always a good idea to check in with your estate planning attorney and let them know of new assets you have acquired.

For example, John buys a new investment property but forgets to transfer it to his trust. At his death, the property may end up in the probate court even though John has a Trust in place.

A move to a new state or country: for most individuals, it is a good idea to obtain a new set of estate planning documents that clearly meet the new state’s legal requirements. Estate planning for Americans living abroad or those who have assets located in numerous countries is even more complicated and requires professional assistance. It is always a good idea to learn what you need to do to completely protect yourself and your family when you move to a new state or country.

Contact our office for a free consultation and review of your existing estate plan.