We’ve previously highlighted the financial and legal planning issue business owners and doctors feel uninformed about, and provided links to more than half a dozen articles on those areas of concern. Today we continue our examination of those blind spots by addressing a common question: When should I update my estate plan?
We’ve previously addressed common estate-planning mistakes made by doctors and business owners so this article assumes you are not guilty of the first one, not acting, and have at some point put an estate plan in place.
When to Update
1. A change in marital status.
We routinely advise that estate plans be updated on marriage, divorce, or the death of a spouse. I am always surprised when a client still has an ex-spouse with whom they may have had a contentious separation named as the beneficiary of their estate. Even in cases where the couple shares children, it’s best to leave those assets in a trust that preserves them for the children and protects the assets from the other spouse’s waste, personal liability, or future relationships.
2. A change in the number of beneficiaries.
As above this may be due to the removal of a former spouse or after the death of a spouse. Other common issues include the birth, death, or adoption of a child, addition or removal of other beneficiaries (take out my ex-best friend), or a change to include remote generations like grandchildren.
3. A change in the status of a beneficiary.
This refers to the condition of the beneficiaries on a wide variety of issues including addiction, age, health, mental capacity, and creditor issues, to name just a few. For instance, we often make special accommodations for an elderly person that may have a pending Medicaid exposure or a child or other beneficiary with special needs who can’t or shouldn’t receive a distribution directly and for whom you need to leave special care instructions. On the other hand, requiring that your children’s inheritance be held in a trust to be managed by Aunt Bessie may not make sense if your daughter just got her MBA.
4. A substantial change in your net worth or assets.
In many cases I find clients have estate plans as old as 20 years, with no real updates and amendments. In the majority of these cases there has been a substantial change (an increase) in the doctor’s net worth, and many of the assets he or she had when the plan was created have changed substantially. Remove room for interpretation and conflict by keeping the list of controlled assets disposed of and acquired up to date and make sure the numbers you used to calculate who gets what and when still make sense. As part of this analysis make sure that your estate plan, especially a Revocable Living Trust, is not overfunded with vulnerable assets. Remember that these tools are the “death planning” and do not protect these assets from your personal and professional liability during your life in most cases. The best estate plan in the world is useless if the assets never get to it.
5. A change in trustees or fiduciaries.
If the people you left in charge have aged, died, or are no longer part of your life for any reason, you need to update. Common issues to consider include age, financial sophistication, mental and physical health, and substance abuse concerns. These people have a heavy responsibility and can be key to your estate plan working the way you wanted, make sure they are still fit choices.
Moving to another state is not necessarily a fatal blow to your estate plan but it should be reviewed to ensure that is adequate to address the tax and probate concerns common in your new home state. Generally, an estate plan validly created in one jurisdiction is valid in another, but there may be clauses to be added or omitted to avoid additional expense and delay in the disposition of the estate.
Finally, think about the adequacy and sophistication of your estate plan. Has it kept up with the complexity of your life? For instance, should you make the significant upgrade from a will to a more formal revocable living trust? There, conventional wisdom on trusts not being required in states with low-cost, fast probate is, in my opinion, just plain wrong. The right trust can be simple, be cost effective, unify the wishes of a married couple, provide privacy by keeping the assets you left and to whom confidential (as opposed to probate, which is public record), provide asset protection for your heirs, and account for a variety of contingencies as described above. It can also provide for your own care, and typically includes general and healthcare powers of attorney and living wills.