The phrase “estate plan” is meant to encompass the comprehensive plan that addresses the manner of passing on your assets at death. However, many clients who initially set up an “estate plan” think of it purely as the set of documents that they sign. This is not the correct way to think about estate planning. We all know that simple things such as dinner plans or vacation plans are subject to change, should your life circumstances change. Something as significant as your estate plan should be viewed in the same way. Because an estate plan is intended to ultimately go into effect upon your death or incapacity, it must be kept current. Otherwise, there is a risk of having a plan go into effect that was created years ago and does not accurately reflect your family and financial situation.
The following are examples of some events which should cause you to revisit and evaluate your estate plan:
Marriage or Divorce. The status of your property rights changes significantly in either of these events. Spouses are generally entitled to economic rights in the other spouse’s property which can severely restrict (and in some instances, completely defeat) the ability to incorporate certain assets into an estate plan, at least not without obtaining the consent or cooperation of the other spouse. Conversely, in the event of a divorce, the property is generally no longer subject to any such rights.
Birth of children. Not only are there financial considerations (think planning for college or other wealth transfer events) but there are several non-financial considerations, such as who will be responsible for your children should you suffer incapacity or death and are unable to care for them yourself.
Significant changes in income or assets. Things such as significant payouts from investment activities or retirement are the most common but also think of things such as receiving an inheritance or earning bonus compensation or an equity/incentive reward from your place of work.
Moving States or acquiring Real Estate in Another State. Both of these events involve several financial and non-financial issues. Since so much of estate planning hinges on where you live (called your “domicile”), ensuring your plan takes into consideration the laws of your new home state is critical. Similarly, laws regarding ownership and transfer of real property are always governed by the state where the real property is located, so ensuring these potentially conflicting laws are addressed in your plan is a must. Lastly, each state has its own income tax and estate tax regimes, so these multi-state tax issues need to be addressed as part of your plan.
Starting or selling a business. While this might seem to fit under the “changes in income” category, there are additional issues to address such as choice-of-entity for the business, the dynamics of business operation among co-owners, ownership/succession planning, and the best means for accomplishing a business liquidation.
Significant Illnesses or Medical Issues. While incapacity planning is almost always addressed in estate planning, sometimes a person’s thoughts change as to how the issue should best be handled once a person is dealing with serious health issues first-hand. Additionally, if long term wealth planning strategies are part of your estate plan, the onset of a significant illness or medical issue might require those strategies to be significantly modified.
As the foregoing considerations illustrate, an estate plan is not a static collection of documents to be filed away until your death. If your estate plan is to function appropriately, it must be reviewed periodically, particularly upon the happening of any significant life events.