Nine events that should cause you to review your estate plan
According to a recent article published by caring.com, only 42 percent of adults in the United States have taken the time to obtain estate planning documents such as a Last Will & Testament or Trust. For those adults in the United States with minor children, the percentage is alarmingly smaller. Just 36 percent of those American parents have an end-of-life plan in place to protect their assets and family members.
For those of you who have an estate plan, it is my opinion that you should review it at least every five years; more often if any of the nine following events occur:
1. Laws change. The federal estate tax exemption for 2021 is $11.7 million and that exemption amount is adjusted for inflation every year. The size of the estate tax exemption means very few (under 1%) of American estates are affected annually; however, the current exemption, doubled under TCJA, is set to expire in 2026. Moreover, it is also well known that the estate tax exemption is under political scrutiny every year so even the most well intended estate plans could require revision if congress or a president with little respect for our legislative process decides to change the current exemption. For the vast majority of Americans, an $11 million estate is not a reality, but events such as inheritances of farms, businesses, sporting teams, or significant estates can cause the threat of a tax event to arise when you least expect it.
2. Financial issues. Like most other factors in our lives, our financial stability could change in an instant. The loss of employment, a pandemic, or a health crisis affects many with estate plans and may require an immediate revision to already established documents. Wars, recessions, technological advances, and bad press can also quickly change the value of our assets. Even the most carefully planned estate documents and strategies such as those involving revocable trusts, special needs trusts, and installment sales to family members must be closely reviewed if such events occur. Any substantial change in income or wealth should trigger a change in how these strategic, estate-planning documents carry out your wishes.
3. Relationships and divorce. If you marry, divorce, separate, or annul, you should immediately revise your estate plan so that only those people you want to receive your assets will in fact do so. Following a marriage, make certain your new spouse is listed as your primary beneficiary on most documents. Following a divorce, remove your former spouse from consideration. Why allow your documents to remain unchanged when by doing so you may be leaving your remaining assets from a divorce to the nasty spouse who may have recently taken one-half of your wealth? When revising your documents as a result of any such relationship change, make certain to address not only your estate planning documents but also your non-probate transfers such as beneficiary designations on retirement assets, transfers of death title designations, payable on death designations, life insurance policies, savings bonds, investment accounts, and real estate deeds. Some experts suggest you make revisions even before you file for dissolution of your marriage; however, I caution you to hit the pause button here. Wait and see what the court includes in its final judgment and order before taking steps that may not comport with the legally enforceable document upon the disposition of your case.
4. You are having children or adopting. For many parents, this event triggers their desire to begin an original estate plan. Among other things, a focus of your first Last Will & Testament could be to propose a guardian and/or conservator for your precious new child should you die before he or she reaches the age of emancipation. If you pass away while the parent of a minor child, a local circuit court would be empowered to choose a guardian and conservator that is in your child’s best interests; however, if you do not take the time to propose a guardian/conservator in an estate planning document, the court could choose someone you would never choose yourself. Keep in mind that just because you record your suggestion for guardian/conservator in an estate planning document, that act does not guarantee he or she will be chosen by the court. It does however substantially increase the chances that your proposed guardian/conservator will be chosen.
5. Death of a loved one or a beneficiary. This one is simple and obvious. Most clients include their loved ones such as a spouse and children as beneficiaries in an estate plan. It makes sense that their death would require a significant change to any estate planning package.
6. Grandchildren born or adopted. If you want to make certain that your grandchildren receive some of your estate, you should specifically list them in your documents as the intestacy laws may allow for their exclusion altogether. Perhaps more importantly is that your estate plan addresses this new family member if his or her parents die before you.
7. Good fortune. Perhaps your personally owned business just landed a big, new account or you are expecting a huge financial success such as a sale or initial public offering of that business. If so, you should think about ensuring your loved ones receive the benefit of that upside potential. What if you hit the lottery and your take exceeds the current federal estate tax exemption of $11 million? If so, any estate plan in place should receive your immediate review and attention.
8. Poor health. The diagnosis of a chronic or terminal illness will affect your family and your estate plan. If your health allows, I encourage you to address your affairs, including but not limited to, your estate plan. This is an obvious time to have your lawyer review any documents and bring them up to date.
9. Your beneficiary develops creditor or dependency issues. Some estate plans distribute money or assets directly to a beneficiary upon your death. If your beneficiary has become overwhelmed by debt or a substance abuse issue, giving them a lump sum may not provide them any net benefit. Instead, perhaps update your estate plan with a trust that will provide your beneficiary a stipend or income stream rather than a lump sum so he or she can benefit from your estate over a longer period of time rather than losing it all at once.
Todd Miller is a monthly contributor and regularly writes and speaks on various legal topic including estate planning, probate and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Ste. A, Jefferson City, Missouri in 2006. He has been recognized as 2016 Adviser of the Year by GolfInc; Golf Tax Consultant of the Year by Boardroom Magazine three times; and “10 Best” attorneys by the American Institute of Family Law Attorneys and “10 Best” attorneys by the American Institute of Criminal Law Attorneys. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, LinkedIn, and Twitter.