Time to Dust Off and Update Your Estate Planning Documents
Chad Halbur, CFA | President | Cornerstone Private Asset Trust Company
Estate planning documents are not a one size fits all approach. Your estate documents need to succeed in intention and complexity as your financial assets and income grow and increase in complexity. The process of updating estate documents is not on most people’s bucket list of fun things to do, and understandably so. We are planning for what happens when we die or become disabled. Who wants to sign up for that exercise? Yet it is an essential part of our financial wellness and planning.
Estate planning includes the following things:
- Beneficiaries on retirement plans (IRA, 401k, etc.)
- Beneficiaries of life insurance
- Estate documents drafted by attorneys (will, living will/health care directive, power of appointment, revocable trusts, and irrevocable trusts).
- For business owners, business agreements (operating agreements and buy-sell agreements).
The need to update estate plans is often sparked by a life event or change in financial status, including:
- I got married. I need to change the beneficiary of my retirement accounts and life insurance to my spouse.
- I had a baby. I need to set up a will (including naming a guardian for my children), power of appointment, and health care directive to ensure my children are taken care of should both my spouse and I die.
- My assets are growing. I have accumulated sizable assets outside of my beneficiary designated accounts, including a home, car, cabin, and second home.
- I want to part with financial assets during my lifetime. I do not want the beneficiaries to have full access to these funds.
Many scenarios will create the need to update your estate planning documents, including:
Change in Marital Status:
- Newly Married: There is typically a need to update the beneficiary on designated beneficiary accounts (retirement accounts and life insurance). You are also planning for bank accounts and other financial assets and real estate and deciding whether to add your spouse to your estate documents.
- Divorced: Once the divorce is final and all the divorce requirements have been honored, many want to change beneficiaries in retirement accounts and life insurance. And they are revising estate documents to remove the former spouse. You would be surprised how often an account is missed and still lists a former spouse as a beneficiary.
- Second Marriage: The more complex the family dynamics, the more intentional and thorough you need to be in reviewing and planning your estate documents. For example, a blended family with children from a prior marriage requires more thought. Things to consider are: Do you treat all children equally? Does the children’s inheritance follow the assets of the biological parent?
Relocated to a New State: The laws of the state that you are a resident of when you die will impact the handling of the estate. In most cases, you will want to update your estate planning documents with the new state’s governing law references and statutes.
Changes to State or Federal Estate Tax or Gifting Laws: The federal estate tax limits are currently at a historically high level of $12.06M. But note they are scheduled to sunset after 12/31/2025 to pre-2018 levels. It is important to look at how these limits impact funding and tax implications.
Increase or Decrease in Your Assets and Net Worth: As your personal net worth changes, the funding to beneficiaries are impacted. It is important to review the flow of assets from your estate plan to ensure that your heirs are receiving the inheritance want them to receive.
Change in Number of Children: Most documents do not need to be amended if you add another child to your family or lose a child in your family. You should pay attention to the case of adoption or children from a second marriage.
Change in the Capabilities of the Individuals Listed to Perform Duties: We must review the people listed in our estate planning documents. There are many reasons why someone listed is no longer capable or the best choice to carry out the duties. Consider changing the individual(s) listed in your plan if they have passed away; or moved far away. It is challenging to perform tasks from afar; they have a hectic job or busy family life and do not have time. Also, consider removing individuals you no longer trust; no longer has a relationship with; have a substance abuse illness or mental illness; or if the professional trustee is no longer in business.
If any of the scenarios discussed above pertain to you, you should make the necessary updates to your estate planning documents so that it reflects your goals and objectives. The best approach is to be systematic and review your estate planning documents every 3-5 years to ensure they’re still accomplishing your goals.
If you have questions or want to learn more about your estate planning documents, contact Chad Halbur at CHalbur@cornerstonetrust.net.