Reviewing Estate Plans Matters
Creating an estate plan is an important accomplishment, but it is not a one-and-done task. Your estate plan is a living set of documents that must be reviewed and updated regularly to remain effective. Here are five important reasons why reviewing your estate plan matters.
1. Stale Documents May Be Rejected by Financial Institutions
Financial institutions, including banks, brokerage firms, and insurance companies, are increasingly reluctant to accept estate planning documents that are more than a few years old. A power of attorney that was signed 15 or 20 years ago may be perfectly valid under state law, but that does not mean your bank will accept it without a fight.
Many financial institutions have their own policies about the age of documents they will honor. They may require that a power of attorney be notarized, that it specifically reference the institution, or that it be updated within a certain number of years. If your agent tries to use an old power of attorney to access your accounts during an emergency, they may face delays or outright refusals.
Regularly reviewing and updating your estate planning documents, including re-signing them even if no substantive changes are needed, can help avoid these problems. A fresh signature and notarization go a long way toward ensuring your documents will be accepted when they are needed most.
2. State Laws Change
Estate planning is governed by state law, and state laws change regularly. What was valid and effective when your documents were first drafted may no longer be the best approach under current law. New legislation can affect everything from how trusts are taxed to how powers of attorney are interpreted to what constitutes a valid will.
For example, many states have adopted the Uniform Trust Code or updated their probate codes in recent years, changing the rules that govern trust administration, creditor claims, and fiduciary duties. If your trust was drafted before these changes, it may contain provisions that are outdated or that no longer provide the protections you intended.
An estate planning attorney who stays current with changes in state law can review your documents and recommend updates to ensure they remain effective under the latest legal framework.
3. Language in Documents Changes
The way estate planning documents are drafted evolves over time as new laws are passed and courts issue new rulings. A provision that was standard 10 years ago may no longer be the best way to achieve a particular goal.
A significant recent example is the SECURE Act, which was passed in December 2019 and fundamentally changed the rules governing inherited retirement accounts. Before the SECURE Act, beneficiaries of inherited IRAs could “stretch” distributions over their lifetime, minimizing the tax impact. The SECURE Act eliminated this stretch option for most non-spouse beneficiaries, requiring them to withdraw the entire account within 10 years of the account owner’s death.
This change has significant implications for estate plans that include trusts as beneficiaries of retirement accounts. Many existing trusts were drafted with the stretch IRA rules in mind and may not work as intended under the new rules. If your estate plan includes a trust that is named as the beneficiary of a retirement account, it is essential to have your documents reviewed in light of the SECURE Act.
4. Estate Laws Change
Federal estate and gift tax laws are another area of frequent change. The federal estate tax exemption has changed dramatically over the years, from $675,000 in 2001 to $11.7 million per person in 2021. These changes affect who needs to plan for estate taxes and what strategies are most effective.
Many estate plans contain provisions that were designed to minimize estate taxes based on the exemption amount at the time the plan was created. If the exemption has changed significantly since your plan was drafted, those provisions may no longer be necessary or, worse, may produce unintended consequences.
For example, a plan drafted when the estate tax exemption was $1 million might include a formula clause that divides assets between a credit shelter trust and a marital trust. Under the current $11.7 million exemption, that formula could direct the wrong amount to each trust, potentially disinheriting a surviving spouse or creating unnecessary complications.
Reviewing your estate plan whenever there are significant changes in tax law ensures that your plan remains aligned with the current legal landscape and continues to work in your family’s best interest.
5. Your Wishes May Not Be Followed
Perhaps the most compelling reason to review your estate plan is the risk that your wishes may not be carried out as you intended. Life changes, and your estate plan should change with it.
Consider this example: a man creates an estate plan leaving everything to his siblings. Over the years, he becomes estranged from several of his siblings but never updates his plan. When he passes away, his estate is divided equally among all of his siblings, including nieces and nephews who inherit a deceased sibling’s share, even though the man had not spoken to some of these people in decades. The people he was closest to at the end of his life, including friends, a long-term partner, and charitable organizations he cared about, receive nothing because they were not included in his estate plan.
This kind of outcome is entirely avoidable with regular reviews. Life events such as births, deaths, marriages, divorces, changes in relationships, changes in financial circumstances, and changes in your own wishes should all trigger a review of your estate plan.
A good rule of thumb is to review your estate plan at least every three to five years, or whenever a significant life event occurs. Even if no changes are needed, the review gives you confidence that your plan is current and will work the way you intend.
Contact our office today to schedule a review of your estate plan.
