When Should You Review Your Estate Plan? Six Examples.

Most of us have heard the stories about famous people who died without a will or other estate planning documents: Aretha Franklin, Pablo Picasso, Howard Hughes, and even Abraham Lincoln all passed away without leaving documents to guide their heirs as to the disposition of their estates. And we also know that the consequences of such an oversight can be severe. The estate of rock superstar Jimi Hendrix, for example was locked in expensive litigation for over 30 years after his death because he left no will. Stieg Larsson, Swedish author of the worldwide bestseller The Girl with the Dragon Tattoo, also died without a will, and because of the dictates of Swedish inheritance law, his partner of 32 years received nothing.

Now, it is unlikely that most of those reading this have failed to take care of drafting a will, which is perhaps the most basic and foundational of estate planning tools. But it is certainly possible that at least some readers have not reviewed their estate planning documents recently, and that can also be a problem. Many estate planning experts recommend that estate planning documents—including wills, trusts, powers of attorney, and medical directives—be reviewed every three years at a minimum. After all, things change: businesses are bought and sold; family members are born and pass away; marriages and divorces occur; people experience major changes in their financial conditions; and other life events happen that create the need to review your estate plan in order to make sure it still fits your needs.

So, in addition to your regular three-year (or more often) review, what circumstances might require you to review your estate planning documents? Let’s take a look at a few specific events that probably indicate the need for an appointment with your estate planning expert.

1. A change in family structure. This could include several different events: births, deaths, marriages, divorces, or even having a child or grandchild reach the age of legal majority. Guardians for minor children, for example, are typically named in the parents’ wills. Trusts intended to cover educational expenses may require adjustment as children are added to the family or as the children finish their educations and enter their careers. A death or divorce may necessitate the elimination of someone who was previously included in the estate plan. A person appointed as guardian for minor children may become inappropriate or unable to serve, perhaps for health reasons. All of these matters should occasion a review of the related documents.

2. A change in the state of residence. Estate law varies from state to state. In other words, what was appropriate for one place may be less effective in another. Some states, for example, require that a spouse inherit a minimum percentage of the estate, and others do not have such a stipulation. Some states impose inheritance taxes, and others don’t. State law can also affect the application of medical directives, powers of attorney, and living wills. If you move or even if you establish a secondary residence in another state, you should consult with your estate planning experts to ensure that your plan is effective for the location.

3. Sale or purchase of a business. In addition to effecting a change in the composition of your assets, buying or selling a business may also indicate a need for some adjustments to your estate plan. The succession plan for the business, for example, might require a life insurance trust to fund a smooth transition in the event of the death of an owner or key associate. The new owner may wish to stipulate what would happen to the business or its assets in the event of the owner’s death. Specific trust documents might be required to protect an owner’s personal assets from liabilities incurred by the business. All of these are matters that should be discussed and examined in connection with your estate planning.

4. Updating retirement plans, insurance policies, and annuities. Assets in IRAs, 401(k)s, and 403(b)s, like the proceeds of life insurance policies and annuities, pass at the death of the owner to the beneficiary who is designated on the account or policy. This means that these assets will pass to the beneficiary independent from the terms of the will. As part of your estate planning review, you should always check the beneficiary designations of these accounts and policies to make sure the beneficiary designation fits with your current wishes. There are far too many stories of IRA proceeds going to an ex-spouse because of an outdated beneficiary designation that was never changed.

5. A major shift in your financial condition. You may receive an inheritance that dramatically increases the size of your estate. You may suffer a setback that decreases your asset base. Any major change in your financial condition, whether for the better or for the worse, should occasion a review of your intentions for your assets and, thus, your estate plan. You will want to review how your property is divided or apportioned and make sure that this is still appropriate in light of your new circumstances. This also includes a change in the composition of your assets. For example, the sale of a major real estate holding may create an influx of cash. This, in turn, may change the way you want to divide your assets in the event of your death.

6. A change in tax or inheritance law. Obviously, your estate plan should be kept abreast of changes in the law. For example, the federal estate tax exemption was raised dramatically with the passage of the Tax Cuts and Jobs Act (TCJA) of 2017. Many estates that previously needed to utilize various strategies to reduce the tax imposed at the passing of the owners suddenly found themselves “in the clear.” However, the higher exemption level is set to expire at the end of 2025, unless it is renewed by Congress. This means that those same estates may need to take a fresh look at ways they can reduce their exposure to the potentially lower limits. And remember that changes in state law can also affect the disposition of estates. Your estate planning expert should always be up to date on current law and ready to assist you in making the changes needed to keep your plan effective.

At The Planning Center, we want our clients to have the knowledge and guidance they need to make informed, smart decisions for all their financial planning needs. As a fiduciary financial advisor and wealth manager, we always place the client’s best interests ahead of everything else. To learn more, visit our website to read our article, “Why You Should Work with a Fee-Only Fiduciary.”