October 25, 2004
Is it time for your annual estate planning check-up? People often associate a "check-up" with your annual medical examination. However, many people forget that they should have an estate planning check-up as well. Your estate planning documents were prepared based on the best information available at the time about you, your family and your finances. Performing an annual estate planning checkup may reveal problems that can be corrected before they cause major issues. In order to stay financially fit in our changing economic environment, there are specific "life events" that should signal a review of your current estate plan. Even the most detailed and carefully crafted estate plan should be revisited periodically to make sure that it is in-line with changing laws and life circumstances.
Three categories of "life events" must be reviewed as part of a thorough estate planning check-up. The three categories of "life events" consist of changes in your family situation, changes in your economic situation and external changes.
Changes in Family Situation
The first step in performing your estate planning check-up is to see if any changes in your family situation warrant an update to your current estate plan. A divorce should always signal that change is needed. In Massachusetts, a divorce revokes the provision in a Will or Trust referring to a former spouse and therefore, it is not uncommon for a person to revisit their Will after a divorce. However, many people fail to revisit their estate plan if a beneficiary of their Will has a divorce. Think of the problems that may arise if you have named your child and his/her spouse as joint owners of your home or other property under your Will and now your child is divorced. In this situation, the provision relating to your child’s former spouse will not be automatically revoked, and if your Will is left unchanged, you would be leaving property to your former daughter/son–in–law. Another reason a divorce should trigger a change in your estate plan is the fact that you may have named your former spouse as beneficiary of your legal contracts that include a death benefit, for example, your life insurance contract, IRA, pension plan or 401(k). If you have not changed your beneficiary designations, your ex-spouse may receive a generous inheritance upon your death.
On the flip side, a marriage should also trigger an examination of your estate plan. In Massachusetts, unless you made a Will in contemplation of a subsequent marriage, which must be specifically stated in your Will, your current Will is revoked upon that marriage. Marriage includes certain legal benefits, and if not addressed properly, you and your spouse could be giving away valuable rights to which you are entitled. For example, if you own property with your spouse as joint tenants, you should change the title of the property to tenants by the entirety. Under this type of tenancy, you remain joint tenants with rights of survivorship, however, it provides increased legal protection from a potential creditor attempting to sell your home to satisfy a judgment.
The death of your spouse or another beneficiary can greatly affect your estate plan, and therefore should be considered when performing your estate planning check-up. In addition, the death of other people you have asked to help with different tasks under your Will, Power of Attorney or Health Care Proxy is another important reason to review your plan. For instance, a court may step in and appoint a guardian if the person you have named as your child’s guardian has died, has become incapacitated or unwilling to serve and you have not revisited your Will.
Changes in Economic Situation
The second step in performing your estate planning check-up is to examine your family’s economic situations. With the fluctuating stock market and constantly changing economy, your wealth may have increased or decreased, which may cause your estate planning goals to change. If your assets have increased, you now may be subject to paying an estate tax, and without the proper estate tax planning, you could be giving thousands of dollars away to Uncle Sam that could otherwise be protected for your loved ones.
An estate planning check-up may also uncover that a change in your children’s economic situation can lead to examining your estate planning goals. If you have more than one child, and under your current Will you have provided for them equally, a change in one of their economic situations may not best meet your goals. For example, if one of your children is financially stable and has more than enough money to last them a lifetime and your other child is either under a financial hardship or financially irresponsible, you may want to reallocate your children’s inheritances to reflect these economic differences.
If you acquire property in another state through a purchase or inheritance, you may not have considered the legal implications from an estate planning perspective. The acquired property may be subject to probate in another state. The time and cost associated with probate is an important consideration and should be coordinated with your current estate plan. Placing the property in a revocable trust will relieve the property from having to be probated. A revocable trust is an estate planning tool that is relatively simple to implement and extremely effective in saving you and your loved ones the time and costs of probate.
Any changes in federal or state law may make an estate plan outdated. On average, tax laws change every couple of years, and therefore, every person in the United States will be subject to new tax laws during their lifetime. An effective estate plan will take into consideration the changing tax laws and provide the maximum flexibility to ensure that your estate planning goals are met. An estate planning check-up may uncover that your estate plan is outdated or was not drafted with the flexibility to withstand the changing tax laws. This may result in an increased estate tax liability, which will lead to a decreased amount of inheritance to your loved ones.
A change in your personal residence is another reason for an estate planning check-up. If you move to a new state, your estate will be settled according to the laws of that state. Certain provisions of your estate plan that are valid in your current state of residence could be ineffective under the laws of the new state.
An estate planning check-up is an important process, and the best way to ensure that your plan is up-to-date is to revisit it on a regular basis. Your plan should be reviewed by a qualified attorney that specializes in diagnosing estate planning issues and can assist you with prescribing a proper cure to make sure your estate planning goals are properly obtained.
Brett A. Kaufman is an Estate Planning and Elder Law associate with the law firm of Bacon & Wilson, P.C. His practice includes sophisticated estate planning issues, guardianship, conservatorship and planning for long-term care.
by: Brett A. Kaufman, Esq.