When to Update Your Estate Plan
Key Points
An estate plan is a vital part of your financial plan.
Updating your estate plan is essential as you go through life, especially during key life events such as marriage, having children, death, illness, or moving.
It’s never too early to begin on an estate plan.
Estate planning is one of those topics that people don’t like talking about. After all, people think its entire purpose is to determine what happens after you pass away. What many don’t realize, however, is that estate planning also includes planning for when you’re alive.
For the high-net-worth individual, detailing what happens to your assets and yourself during life and post-mortem is an essential part of your financial plan. It’s also essential to revisit and update this plan throughout your life.
What Is an Estate Plan?
In short, an estate plan is the process of arranging for the management and/or distribution of your money, assets and property during and after your life. It consists of various legally-binding documents and strategies. Notice I said, “during … your life.” Included in an estate plan are documents such as a living will and power of attorney for healthcare and property. These documents ensure your wishes are carried through if you’re incapacitated and can’t communicate your medical care and financial wishes.
A living will is especially important for individuals with children, as you can assign a 'guardian,' an individual who will take care of your minor children after you and your spouse pass. If you don’t name a guardian, the courts can potentially decide for you.
Why Is an Estate Plan Necessary?
Estate planning components like beneficiary designations, asset titling, powers of attorney, last wills, and trusts are vital to ensure that your wishes on your health decisions and financial decisions are carried out. There might be complex situations that require advanced techniques that can only be legally handled through these documents and entities. Unfortunately, a simple will usually doesn’t fulfill all of your wishes. Many components are necessary to smoothly create an estate plan.
When Should I Update My Estate Plan?
Because planning for the worst-case scenarios is uncomfortable, often people will think they only have to do it once. It’s not, however, a one-and-done endeavor. When you really understand all that an estate plan entails, you’ll see why updating is so important. In general, a good rule of thumb is to revisit your estate plan every three to five years — it’s also necessary to review the estate plan especially during certain key life events
Marriage or Divorce
When people get married, they usually begin trusting their spouse with additional responsibilities. If you’d set up your estate plan prior to getting married, know that wills, trust documents, or beneficiaries don’t automatically add your spouse. You need to intentionally update those documents, if you wish to include them in your estate planning. The same is true in divorce. You may want to exclude your ex-spouse from your trust, will, and remove them as beneficiaries on certain accounts.
Children: Birth or Adoption
Adding children to your estate plan doesn’t automatically happen. When you add a child to your family, you may want to add them to your wills and trust and as a beneficiary for certain life insurance policies. It’s also important to establish guardianship for them in case a fatal tragedy happens to you and/or your spouse. Your estate plan helps ensure your children are taken care of in case of an emergency.
In addition, until your children are older, there are provisions you’ll want in place. A trust helps with complex wealth transfers. For example, you may want to restrict your child’s access to certain funds or assets until they reach a certain age. You may want to limit withdrawal amounts each year. You want to make sure you’re comfortable with the way your assets are distributed in case something were to happen to you. As your children age, you may then want to give them additional freedoms.
Family Illness or Death
Beneficiaries are people designated to receive benefits of certain assets which can include various retirement accounts such as IRAs, 401(k)s, pensions, etc. If your spouse, child or other trusted beneficiary should become incapacitated or pass before you, you’ll want to consider updating beneficiary designations.
Moving to a Different State
Revisiting your estate plan when you relocate is very important for many reasons. Different states have different forms and rules. Let’s say you originally completed estate planning in Illinois. When you move, your new doctors or court officials may not be familiar with your IL Power of Attorney Forms. This could delay allowing your power of attorney to help you with your medical and financial needs.
Am I Too Young for an Estate Plan?
It’s never too early to set up an estate plan. Even if you’re single and in the early stages of accumulating wealth, you’re still at risk for serious healthcare situations that may need direction. Your estate plan is designed to ensure your wishes are carried out. There’s no downside to creating one, but not having one can wreak havoc on your loved ones. When there’s no plan in place, authority becomes muddy and the legal system takes over.
Financial planning is so much more than money. As Financial Planners and Wealth Advisors, we’re there throughout your life for all of its ups and downs. We work closely with attorneys and resources to help ensure your estate plan is appropriate and personalized for you and your family.
Plus, states have different estate tax rules. You’ll want to revisit how your assets are titled and evaluate advanced planning techniques to minimize any state estate taxes you would need to pay.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.