Maintaining the Effectiveness of Your Estate Plan: Is Your Plan Up to Date?

One question that clients frequently ask is “How often should we review our estate planning?” Although a comprehensive estate plan should not require frequent, extensive review, we recommend regular, periodic reviews of your core estate planning documents (will, revocable trust, financial power of attorney, advance health care directive) to ensure the documents accomplish your current objectives, especially if your circumstances or wishes have changed.

You should also consider the potential impact of changes in tax laws on your estate plan. Under a 2017 law, the federal estate, gift and generation-skipping transfer (GST) tax exemption amounts were temporarily doubled (see “Tax Cuts and Jobs Act: Impact on Estate and Gift Planning,” Pasternak & Fidis Reporter (Spring 2018)). For 2020, the exemption amount is $11.58 million and is adjusted for inflation. In 2026, the exemption amount is scheduled to decrease by half unless Congress acts between now and then. The tax rate on estates, gifts, and GST transfers above the exemption amount is 40%. There could be significant revisions to the federal transfer tax laws even before 2026. In any event, there is no assurance that the increased exemption will be made permanent. In light of the current law, in certain situations it may be beneficial to modify existing estate plans or to make lifetime gifts to new or existing trusts for the benefit of children, grandchildren, or other beneficiaries to take advantage of the historically high exemption amount.

Here is a checklist to help you review the state of your planning.

1. Will. Have the circumstances of your beneficiaries or your wishes for the distribution of your assets changed? Are the people you have designated under your will in a fiduciary capacity (personal representative, trustee, guardian for minor children) still the individuals you wish to serve in that capacity? Since you signed your will do you have assets of greater or lesser value which, along with changes in the federal transfer tax laws, might suggest a change in tax planning is warranted?
2. Financial Power of Attorney. Have you changed your mind about the appropriate person to manage your financial and property affairs in the event of your incapacity? Is your power of attorney more than five years old? Does your existing power of attorney specifically authorize your agent to access and manage your online accounts?
3. Advance Health Care Directive. Have you changed your mind about the person who should make your healthcare decisions in the event you cannot? Have your wishes for your health care changed, including your views about artificial life support (e.g., CPR and breathing machines) in light of the COVID-19 pandemic?
4. Revocable Trust. If a revocable trust is a part of your estate plan, is it properly funded to maximize its usefulness for probate avoidance? Given your age or health, do you need to consider incorporating a revocable trust in your estate plan as a financial management tool in the event of your incapacity?
5. Asset Protection. Are you concerned about protecting an inheritance you leave to your children from divorce, creditors or dissipation from lack of proper management? Do you wish to protect assets you leave a spouse against the claims of a subsequent spouse so that the assets eventually pass to your children or other beneficiaries of your choice?
6. Trusts for Children. Are your children older, wiser, more stable than when you first established a trust for them under your will so that they should be involved in managing their own assets? Or does a child have problems with finances, creditors, or a spouse that you had not contemplated when your estate plan was established? Do you think that another person might be a better choice to serve as trustee of a trust for a child under your estate plan? Given your current assets and the current federal transfer tax laws, should you consider making lifetime gifts to a new or existing trust for the benefit of children (and grandchildren) to optimize the use of your available gift and GST exemption amounts?
7. Life Insurance. Do you need to review the beneficiaries on your life insurance policies to be certain they are consistent with your estate plan? Do you need to review your life insurance policies to see that they are performing as anticipated when you purchased them, or to see if there are better more cost-effective products on the market? Do you need a life insurance trust to protect proceeds from estate taxes or to hold policies that are needed to pay estate taxes that may be due on your death?
8. Retirement Assets. Have you recently changed jobs or retired and rolled over your retirement plan? Are your beneficiary designations for all retirement accounts up to date, in accordance with your current wishes and properly coordinated with your overall estate plan?
9. Charitable Beneficiaries. Do you have charitable beneficiaries that you want to benefit that are not mentioned in your will? If you have charitable beneficiaries, do you want to consider whether to maximize income tax savings by making donations to them out of retirement assets rather than under your will, given the value of your assets and the current estate tax laws?
10. Disability Planning. Is physical or mental disability for you or a family member now a greater concern to you than when your planning was completed? Do you need to review any provisions for a beneficiary with a disability to be sure that assets you leave them are protected so as not to disqualify the disabled beneficiary from receiving governmental benefits?

If you answered “yes” to any of these questions, then it may be time for a review of your estate plans.