Estate planning is the process of developing a strategy for the care and management of your estate if you become incapacitated and 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 estate planning 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, a major trip outside the country, 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 plan review can ensure you and your new spouse can rest easy that your financial and medical affairs are in proper order. If there is a prenuptial agreement, it is important that your estate plan incorporate the provisions of the prenuptial agreement. Otherwise, your spouse or family members, or both, may end up with something different than you intended, or perhaps even end up in ugly litigation over your assets.
If you are about to re-marry, have children from a previous marriage, or have substantial wealth, you may want to consider a prenuptial agreement. Immediately upon the act of marriage in most states, there are substantial and pervasive changes in the property rights that your new spouse will have, as a matter of law. Many options associated with estate planning are reduced or eliminated when a new marriage occurs. These changes include spousal elective share, beneficiary designations, especially for some retirement plan accounts, homestead rights, and other impacts on your assets that are integral to your estate planning options. A careful review of your estate planning, both before and after a second marriage is critical to maintaining control over your assets and your estate planning.
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: some state and federal laws may remove a former spouse from an inheritance after the couple splits, however, this is not always the case, and it certainly should not be relied on as the foundation of your plan. After a divorce, 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).Several times a year we have the opportunity to remind existing and new clients about the importance of changing the beneficiary designations, including wills and trusts, when a divorce occurs. The failure to change beneficiary designations will result in your assets being transferred to your ex-spouse rather than your children or your new spouse. Some of those reminders are too late – the former spouse ends up with life insurance proceeds, retirement plan distributions, and other assets that were never intended. Its very important that after you visit with your divorce lawyer that you then visit with your estate planning lawyer.
The death of a loved one: sometimes those who are named in your estate plan pass away. If an appointed guardian of your children dies, it is imperative to designate a new person. Likewise, if your chosen executor, health care proxy or designated power of attorney dies, new ones should be named right away. Similarly, if beneficiaries you have named in your estate plan predecease you, it may be important that you change the beneficiaries of your estate planning.
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. This is especially true if your assets grow to the level that estate taxes become an issue.
Travel outside the United States: If you plan to travel outside the United States, it may be a good time to review your estate planning before the trip. Updating, or putting in place, appropriate health care designations and medical powers of attorney may be critical should you become medically incapacitated during your travel.
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. We are here to help you get fully settled in and build a plan to protect you and your family.