The biggest mistake people make with estate planning is simple – they fail altogether to get a will in place, leaving their heirs with all sorts of problems and, in many cases, unintentionally creating lasting disputes. While having a plan is the single most valuable thing you can do, the value of the plan declines if you fail to make periodic updates. For this reason, some estate planning professionals encourage clients to update their plans on a regular basis, with some suggesting an annual, bi-annual, or quarterly review. Except in unique circumstances, we think such frequent reviews are impractical and unnecessarily costly. Instead, we encourage clients to update estate plans every 10 years if they are under 55, and every 5 years if they are over 55. We suggest a shorter time frame between reviews for older clients because the marginal value of updates increases as life expectancy decreases. Older clients also generally have more assets that require consideration as they age, again increasing the marginal value of keeping a plan up to date. Outside of this “rule of thumb,” the following events should be cause for reviewing a plan.
1. The people named in your plan need to be changed due to birth, death, or divorce
Any time that the people who will receive your assets or play a role in the administration of your estate changes, it is a good idea to update your plans to reflect the new reality. If you have children, get married or divorced, or someone who was named as a beneficiary, personal representative, trustee, or agent under a power of attorney dies, you should consider updating your plans to reflect the change. In many instances, you may be advised that no changes are necessary. Nevertheless, it is important to work with your attorney to understand the effects of these life events on your estate plan.
2. You experience a significant change in property or assets
Any time you purchase new property or sell existing property, you should consult with your attorney to identify what parts of your estate plan might be affected. This maybe as simple as purchasing the property in the name of your trust if you have a revocable living trust. If you open, purchase, or inherit a business, it is critical to obtain guidance on how to plan for succession die or become disabled, and a wide array of related considerations. Relatedly, if the size of your assets expands significantly for any reason, there are many changes that might be worthwhile.
3. Changes in tax laws
We try very hard to keep clients updated on changes in tax laws and laws pertinent to estate planning. If you learn of such a change, it is a good idea to reach out to us to understand how your estate plan may be affected. In 2020, for example, passage of the SECURE Act changed how most retirement accounts would be affected upon the death of the original account owner – a change that received relatively little news but affects a significant majority of estates in a big way. Looking ahead, it is anticipated that significant changes are coming to the federal estate tax laws soon in connection with the Build Back Better Act. And, unless the U.S. Congress intervenes, the amount of the estate and gift tax exclusion is set to “sunset” from its historically high exclusion amount to $5 million in 2026. This will certainly increase the number of people who have to consider changes to their plans to avoid a significant tax on assets. Any of these changes may justify seeking a review of your plans to position yourself and your estate appropriately.