Think about the last time you left your home for an extended weekend. How much preparation work did you do? If you’re like most homeowners, you probably checked for lights, candles and leaks several times before heading out the door. You contacted neighbors or close friends to “drive by” and let them know how you want contingencies handled, doing your best to ensure your home’s condition would not change while you were away.
An estate plan is similar. It’s your chance to map out instructions for what happens after your death. And just like providing emergency contacts for a housesitter, your estate plan gives you the opportunity to think through what you want to happen in different scenarios. Estate planning protects your wealth, provides for your family, and outlines exactly how you want your assets allocated. When assets are left for others in a will alone, they must go through probate — the legal process of recognizing a will and appointing an executor for its distribution. Estate planning avoids the hassle — and costs — of probate for your beneficiaries.
There is no minimum wealth threshold for who needs an estate plan. When you add in business ownership and complex family relationships, estate planning becomes absolutely essential.
The Importance of Review and Upkeep: 3 Triggers
Once you have an estate plan, you don’t want to merely file it away and forget about it. Instead, you should regularly review it to make sure the instructions align with your wishes and the best interests of your beneficiaries.
Building in time for a once-a-year checkup with your trusted financial advisor to reassess critical parts of your plan and adjust them as needed is a good rule of thumb. You won’t need to make changes every year, but you’ll want to make sure your plan is current in three key areas:
1.Evolving Family and Beneficiary Relationships
When planning a wedding or welcoming a child, you don’t always put estate planning at the top of your to-do list. But happy milestones like these should be a trigger to refresh your estate plan to ensure your new spouse, child, or grandchild are cared for.
Likewise, a divorce or a death also requires a plan update. Often, your initial estate plan will name your parents as personal representatives or trustees. As your parents age or die, you’ll want to revisit the backups named in the plan and add backups as needed. In the event of a divorce, some states automatically remove the ex-spouse as a beneficiary — but not all states do. Make sure to keep your beneficiaries current so that the people you want to receive your assets actually do.
It’s also important to name secondary beneficiaries. Many times, people name their spouses as their primary beneficiaries. However, your plan should account for worst-case scenarios, such as an accident. If you and your spouse die at the same time and your estate plan doesn’t have a contingent beneficiary, your assets will go through probate.
2. Ever-Changing Tax Laws
Taxes may be inevitable, but the tax laws related to estate planning are adjusted more frequently than you might think. In fact, the estate tax exemption amount has changed 14 times since 1997.
When the estate tax level was lower, plans were designed to give up income tax advantages to avoid estate taxes. But with today’s much higher tax exemption amounts, you likely don’t need to worry about estate taxes. If your plan was created before 2011, it’s critical to refresh it in order to ensure that you’re in line with current tax laws.
The current estate tax laws are set to end in 2026, but anytime there is a change in presidential administration, watch for adjustments, especially in the exemption amount. Alterations to tax laws, including adjustments to deductions related to business ownership or gift taxes, should always trigger a review of your estate plan. But don’t be daunted. Your financial advisor or lawyer can help you determine the implications for you and your family.
3. Aligning Trusts and Titles
As part of estate planning, most people create a trust to protect assets and to simplify the transfer to heirs. However, problems arise if not all assets are titled in the name of the trust.
Unfortunately, people go through the planning process, sign all the documents, and then check estate planning off their lists. They don’t always follow through with retitling their bank accounts, house, cars, and other assets into their trust. Anything that’s not titled appropriately will end up going through probate, which is exactly what the trust is meant to prevent.
Sit down with your financial advisor and review a list of everything you own and how it’s titled. It’s not uncommon to find an asset or two that needs to be retitled. Extend the review to include transfer on death accounts and beneficiary designations. Qualified accounts such as IRAs, 401(k)s or pensions can’t be retitled for a trust. Instead, ensure that you have a primary beneficiary such as your spouse, with your trust as a secondary beneficiary.
Estate planning can seem overwhelming, so it’s easy to put off. But procrastinating can create painful unintended consequences for the people you love. Find a financial advisor you trust and sit down annually to review your plan, financial power of attorney and healthcare directives. That way, you’ll ensure that the instructions you leave behind reflect your wishes and the best financial interests of your beneficiaries.