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How to Avoid Conflict in Your Estate Plan – Part IV

Do I Need to Update my Estate Plan?

When Jackson Carter died, his family knew just where his estate planning documents were stored: In his safety deposit box. He had told them so at least once a week.

Once the family received permission to open the box and remove the documents, they delivered them to his attorney. Then they met  to discuss the particulars. The bequests were clear:

To his wife, Martha, Jackson left his share of their home, a generous allowance, and 50 percent of the shares in his delivery business.

  • To his five children, he left 10 percent of the shares in his business, and created a trust to fund the education of their children.
  • To his long-time secretary, Alice, he left $100,000.

Unfortunately, Martha had proceeded Jackson in death the prior month, and one of his children had predeceased both of them. There were no grandchildren, nor was there likely to be. However, by failing to update his estate plan on a regular basis, especially after the death of his wife and child, significant questions about the distribution of his estate arose. For example:

  • How should the bequest to Martha be disbursed? Should it be considered part of Martha’s estate and distributed according to her will, or should that part of Jackson’s will be declared invalid and his estate distributed via state intestate laws?
  • Should the deceased child’s share of the business be absorbed by the other children or does it pass to his spouse by his will?
  • What happens to the trust and the assets used to fund it?

Obviously, it is not enough to complete an estate plan and store it away until death. It should not only be reviewed at least every five years to accommodate changes in estate and tax laws, it should also be reviewed and updated upon the following occasions:

  • The death of named beneficiaries.
  • Family additions, such as births, adoptions, and marriages.
  • Divorce and remarriage, either among the testator or named beneficiaries. A divorce does not necessarily update a will nor does remarriage. In addition, failing to name a new spouse as an heir could result in the invalidation of a will, and the proceeds of the estate distributed under intestate laws. Second marriages also require special planning. There is no guarantee, for example, that a new spouse will provide for children from a decedent’s first marriage, nor are they required to bequeath inherited assets to a decedent’s children upon their death.
  • A significant change in the nature or value of an estate, such as the acquisition or sale of a home or a business. Generally, small estates do not require complex strategies for minimizing the tax consequences of death. However, a significant increase in the value of an estate changes that. Other strategies may be required to minimize enhanced tax penalties.
  • One year prior to reaching the age of 70½ years. Most IRAs, 401 (k) plans, and pension plans require that distributions begin at age 701/2. Those distributions may be impacted by named beneficiaries and the existing provisions of a will or trust.
  • The enactment of laws that impact an estate, such a change in gifting laws or the exclusion limit for estate taxes..
  • A move to a different state. A will created in State A may not be valid if a testator’s residence is moved to State B. Then the rules in State B apply to your estate. The laws regarding wills, trusts, and estates differ from state to state. What is valid in one may not be valid in another. It is important to check.
  • A change in guardianship, or the death of a trustee, personal representative, appointee, or executor.
  • When beneficiaries reach the age of majority. Generally, a guardian is appointed when there are minor children. However, once a child reaches the age of 18, they may inherit in their own right. In addition, trusts established for the support of minor children may expire or no longer be necessary. Finally, once children become adults, it may be more practical to name them as trustees, executors, or appointees.
  • A change in family needs, such as disability or the birth of a special needs child.
  • The assumption of significant indebtedness, either as a borrower or co-signer or a loan.
  • Borrowing a significant amount of money to a child or other person.
  • The receipt of a large inheritance or gift.
  • A change in employment or career that alters the nature of an estate, such as the addition of life insurance benefits or the funding of a 401(k) plan.

Reviewing your estate plan regularly will ensure that your intended legacy becomes reality. Failure to make the necessary updates could throw you estate into chaos, resulting in lost or greatly reduced inheritances.  Feel free to call Kirsten Howe Attorney at Law to assist you with your estate plan update.