Many of us already have a plan in place which outlines what we wish to leave to our children, grandchildren, or other loved ones, and maybe even a charity or two. If the plan is complete, it also addresses the possibility of incapacity. But, how old is your plan? Estate planning is not a one-time event. Your plan needs to be periodically adjusted to account for changes in your life. Thus, it is crucial that you periodically review your plan to make sure that it still fits your current personal and financial situation and that there have been no changes in the law that would significantly affect your plan or its implementation. In most cases, the documents will not “expire.” However, like a car, an estate plan must have periodic check-ups and be fine-tuned to remain in good operating condition and perform as you intend. A change in your financial net worth, the death of a spouse or other beneficiary, the birth of children or grandchildren, or a substantial change in the tax laws may warrant a review of your documents.
An outdated estate plan may not work as intended. For example, if your plan is more than five (5) years old, the tax provisions likely need to be updated. There have been significant changes in the estate, gift, and generation-skipping transfer tax laws since 2010. If these changes have not been addressed in your plan, your spouse and/or ultimate beneficiaries may incur additional expenses and have to deal with unnecessary complexities in implementing your plan upon your death. Many plans can now be simplified because the estate tax exemption has increased substantially. Other changes include the adoption of Virginia’s Power of Attorney Act, the federal Secure Act which deals with distributions from inherited IRAs, “digital assets,” and the Virginia POST (physician orders for scope of treatment) rules for documenting patient wishes concerning treatment, just to name a few.
Time usually passes more quickly than we expect. As a result, you need to make it a priority to re-evaluate your goals and your revocable trust and/or will, property powers of attorney, health care directives, and any other estate planning documents at least every five (5) years, and earlier when there has been a change in circumstances, such as:
➢ You or your spouse receives a diagnosis of dementia or a terminal illness;
➢ Your spouse becomes incapacitated or passes away;
➢ One of your beneficiaries becomes incapacitated or passes away;
➢ One of your beneficiaries experiences a change in circumstance (i.e. marriage, divorce, birth or adoption of a child, etc.);
➢ One of your beneficiaries suffers an illness or injury which makes them eligible for government benefits such as Medicaid, SSI or SSDI, or has a child who may be eligible later in life;
➢ One of your fiduciaries has died, is no longer able to serve, or is no longer the best choice;
➢ The person named as guardian of your minor children has died, is no longer able to serve, or is no longer the best choice for your children;
➢ You wish to create a gifting program so that you can see your beneficiaries enjoy your gifts while you are still alive;
➢ You want to reduce your income taxes and estate taxes so as to pass on more to your heirs;
➢ You wish to investigate options for protecting assets for you and/or children and other beneficiaries;
➢ You cease supporting a charitable, religious, or educational organization named as a beneficiary under your estate plan.
What many people don’t realize is that there can also be significant financial benefits to keeping their estate plan current. Estate and income taxes can be minimized, assets can be sheltered from creditors and the costs of long-term care, and beneficiaries can receive greater protections from an updated estate plan.
As you consider your plans, we recommend you talk generally to your beneficiaries to see if there are any special wishes they have and to ascertain what their mid-term and long-term plans are for themselves and their families. You should also periodically review all of your assets including deeds, notes, banking and other financial accounts, retirement accounts, insurance papers, and beneficiary designations, to make sure that you have everything properly titled, and that you understand how these assets will pass, and to whom, at the time of your death. In addition, all of your documents should be kept in a safe place, and your executor, trustee, and/or agent must know where to find them, and who to call, in case of an emergency.
Many people fail to keep their estate plan updated because of the potential costs involved in meeting with an attorney and drafting new documents. However, the costs will be much greater if the documents don’t work. Without a current and comprehensive medical directive in place, you face potential guardianship which results in a court process culminating in a legal determination of your incompetency. Without a current and comprehensive property power of attorney in place, you face potential conservatorship, which is also a court process that will appoint someone to make legal and financial decisions for you; thereafter, there will be ongoing expenses associated with the conservatorship such as surety bond fees, annual court filing fees, and annual compensation for your conservator. In addition, your entire financial situation becomes a matter of public record, and the courts will remain involved until you regain capacity or die, whichever first occurs. Where there have been changes in the tax laws, your older plan may fail to take advantage of all benefits available, and there could be additional costs in reforming or updating an outdated plan after your incapacity or death. Finally, final expenses and taxes can be minimized with proper planning.
The other reason people fail to keep their estate plan updated is because thinking about our own mortality is unpleasant. Many people also have difficulty thinking about a spouse or child dying or becoming incapacitated. But just because you avoid thinking about these things doesn’t mean they won’t happen. Despite the fact that the estate planning process may be unpleasant, most people experience a peace of mind after completing or updating their plan, knowing that they are protected should the worst occur and that they have a plan in place to make the transitions easier on those left behind.
At the Peninsula Center for Estate and Lifelong Planning, our mission is to help our clients prepare for the unexpected. We value our relationships with our clients and devote ourselves to cultivating and maintaining lifelong relationships so our clients can relax in the knowledge that we will be here to help if and when needed. If we can provide any additional information on this issue or assist you in updating your estate plan, please contact us.