With so much uncertainty in the world this past year, you may be asking the question, “Do I need to review my estate plan?” and perhaps “When is the right time to review my estate plan?”
If you ask these questions, you have already taken the most challenging step; getting started. Once you have designed an estate plan to meet your needs, the next step is ensuring that your documents are up to date and fulfill your ever-changing needs. Note: Your assets must be appropriately titled.
When do I need to review my estate plan?
While it may be a good habit to review your estate plan regularly (annually, semi-annually, or quarterly), many leading financial planning companies recommend that you review your documents at least every three to five years. We recommend an annual self-audit and a visit with your team of professionals at least annually or bi-annually.
While your professional advisors may charge for these reviews, the results invariably are financially and emotionally positive and well worth the time and effort.
Outside of regular reviews, changes in circumstances in your life, family dynamics, finances, and tax laws change can all be valuable times to review your plan. In this article, we will address these critical life changes.
What should I consider when reviewing my estate plan?
First, it is essential to note that your estate plan is built based on your current circumstance at the time of drafting, and therefore it is necessary to modify the documents as your circumstance changes. Estate planning, in general, is dynamic and, like a garden, requires watering and pruning. Therefore, you should draft a well-designed estate plan to maintain maximum flexibility and control.
Because of this dynamic nature, there are a few key variables to consider when reviewing your estate plan: financial changes, family dynamics/changes & legal/tax changes.
Here are four of the primary reasons to pick up the phone and make an appointment to review your estate plan.
- Financial Changes
- Family Dynamics/Changes
- Legal/Tax Changes
- Health/Lifestyle Changes
Financial Changes:
Whether you have experienced a significant increase or decrease in assets, it is vital to review your estate plan. For example, if a person sells their business for a profit, they may want to reassess any direct gifts made. It may move that person into a different tax bracket or expose estate taxes that the original plan did not otherwise address. In case of loss of assets, it could be equally important to modify your plan to ensure that it takes care of your loved ones according to your wishes.
Here are some of the key changes related to your financial situation that may warrant an estate planning review:
- A significant change in financial assets
- New advisors, including financial advisor, CPA, insurance agent, Trust officer, or Property and Casualty agent
- Change of financial manager
- Desire to refine a legacy plan
- Want to add or subtract a charity
Family Dynamics/Changes:
Many of the significant milestones in your lives represent opportunities to review and revise your estate plan. Changes to the family structure, including marriage, divorce, and having children, can significantly change your goals and desires concerning your estate planning needs. Other factors like retirement, moving, or the sale of a business or property can also present new planning opportunities.
Here is a brief list of changes that warrant a review:
- Marriage or cohabitation
- Divorce or separation
- Birth/Adoption of a grandchild
- Divorce of a family member
- Child or grandchild needs more protection
- Marital issues
- Spouse needs assistance by financial coach/trustee
- The person you selected to run your trust - family member or outside trustee no longer fits the role
- Sale or transition of business (business succession planning)
- Sale or purchase of homestead or investment property
Legal/Tax Changes:
Finally, it’s essential to stay current with any tax law changes. There have been three major law changes in the past five years; The Tax Cuts and Jobs Act of 2017, the SECURE Act, and the CARES Act. Your estate planning attorney, financial planner, and CPA can provide you with updates and explain how they may affect your specific situation.
Additionally, various state and local law changes have been made that can affect your plans. Typically, you can discuss these changes at our regularly scheduled review. However, some items require immediate attention following a shift in the tax code.
Here are a few things to look out for:
- Federal tax law changes
- State and Local tax law changes
- Economic guidance and changes
- Inflation adjustment to the Federal exemptions and exclusions that affect you (for taxable estates)
Health/Lifestyle Changes:
It goes without saying that if you have a change in your health status or are diagnosed with a long-term illness, it is essential to take inventory of your financial, estate, and long-term care plan. With a properly designed plan with great flexibility, it should be relatively easy to audit your situation if you have a health care setback or issue.
Here are a few health and lifestyle events that warrant a check-up:
- Retirement or major transition
- Relocation to a senior lifestyle community
- Family members with drug or alcohol addiction issues
- Sale or transition of business (business succession planning)
- Health Issues (specifically a long term illness diagnosis)
- A family member diagnosed with special needs
Change is inevitable. The key takeaway when considering a review of your plan is to be proactive. Looking ahead can help you avoid unnecessary expenses, taxes, and stress. Remember that it is better to make the adjustments on your schedule and not the government or anyone else.