When to Review Trusts and Other Estate Plans

Jan 19, 2017
Estate Planning Living Trusts

Safeguard and Periodically Review Your Estate Plan.

Reviewing trusts and estate plansNo Estate Plan is ever finalized. Tax laws, economic conditions, estate exclusions, account values and inflation constantly change which affects the way they are implemented.

Material events that suggest it is time for a review of your Estate Plan include:

  • Funding your Trust – especially if opening new accounts or moving to a new financial institution
  • Marriage or divorce
  • Birth of a child
  • Death in the family
  • Changes in financial status
  • Change in beneficiary status
  • Death or change in circumstance of the guardian named in your Will for minor children
  • Death or change of circumstance of your Successor Trustee or Executor
  • Changes in State or Federal law concerning taxes or investments
  • Purchase of a home or other large asset(s)
  • Starting, buying or selling a business
  • Moving to another state
  • Health issues with yourself/family member

Material changes in your life should always trigger a Trust review. If nothing major has changed for you, then you should take it upon yourself to review your plan at least once every two to three years. It's possible that while changes might not have occurred in your life, your children, grandchildren, or other beneficiaries might have had events occur that effect your plan.

Funding Your Living Trust

The most common mistake people make who have Living Trusts, is forgetting or neglecting to re-title assets to the name of the Trust. Failure to fund your Trust may expose assets to Probate. Review your statements and meet with your financial advisor, banker, insurance agent and anyone else who holds your financial assets to ensure your assets are properly funded and that all beneficiary assets, such as IRA's, 401k's, Life Insurance and Annuities, have correct and updated beneficiary designations. Your Living Trust can play an important role as a primary or contingent beneficiary of these types of accounts.

Change in Marital Status

MIDDLE AGE WEDDINGGetting married can entail many things including changing beneficiary designations on retirement accounts and any life insurance policies. You should plan together and with a professional estate planner whether you wish to convert separate assets to community property.  Without proper planning and forethought you may inadvertently take actions that irretrievably co-mingle assets. Likewise, Wills and Trusts may need to be updated to reflect the desire to pass certain assets on to a spouse in the event of a partner's death.

Getting divorced may include undoing some of the estate planning related activities you did when you got married and during your married life. You likely will want to change beneficiary designations on retirement accounts and life insurance policies, perhaps to children or other relatives. Often you will also want to create a new Living Trust.

Birth of a Child

If you have created a Will or a Trust before a child is born, you could inadvertently disinherit them or trigger an expensive legal battle over your estate. Make sure those documents are updated immediately after the birth of a child.

Death in the Family

The sudden death of a spouse, child, parent or even sibling creates an obvious call to review your Estate Plan.

Changes in Financial Status

Over the years, wealth might have increased due to career success, an inheritance or investments that have performed well. This increase in wealth could complicate passing assets to heirs upon your death and would justify revisiting an Estate Plan.

On the other hand, if your wealth has dropped significantly, for whatever reason, you may want to simplify things in terms of your Estate Plan.

Change in Beneficiary Status

Things may have changed in the lives of one or more beneficiaries since you initially set up an Estate Plan. The first major review should be done when children or grandchildren become adults. Later on, perhaps your client's intent was to benefit their children equally but now one has become independently wealthy and they would prefer to leave their assets to the others who have a greater need.

Another scenario might be that one of your client's children has become a spendthrift, and they are not comfortable with you giving them a large sum outright. You might have to make other arrangements in order to benefit them while at the same time saving them from their own bad habits.

Also, a beneficiary might be partially or completely disabled, begun receiving public financial benefits assistance, or have since passed away.

Death or Change in Circumstances of the Guardian Named in your Will for Minor Children

If you have selected a guardian for your minor child who passes away, you should revise your selection and name at least one backup. What if your selected guardian suffers a medical condition or disability that could impair his or her ability to serve, consider revising your selection. Your selected guardian could become financially insolvent or unstable, this also could be a warning sign, especially if you have also selected that person to serve as Successor Trustee who will have unfettered access to your assets.

Death or Change of Circumstance of your Successor Trustee or Executor

A deceased, disabled or financially insolvent or financially unstable person nominated as your Successor Trustee or Executor could be a disaster.   An otherwise qualified Successor Trustee or Executor who is over-committed in his/her personal and family responsibilities might be excessively over burdened by adding a Trustee role to his or her other priorities. Consider naming other family members or even a Corporate Trustee or other professional fiduciary.

Changes in State or Federal Law Concerning Taxes or Investments

Changes in estate taxes, exemptions or income or capital gains taxes may warrant a review of your Estate Plan and the investment choices you have made.

Purchase of a Home or Other Large AssetHOME PURCHASE

Our homes are often our largest assets and special attention should be paid to how you elect to hold title. If you have a Living Trust, make sure there is a recorded deed that shows the Trust is the titled owner. The same goes for investment real estate or other significant assets.

Starting, Buying or Selling a Business

If you have started, or are buying a business, make provisions to pass the value of this business on to your heirs. One vehicle might be a buy-sell agreement, which is funded by an insurance policy. This arrangement will essentially provide value to your heirs in the event of your death or disability and not burden the remaining partners in the business having to deal with heirs who are not otherwise involved with the entity. There are a number of variations of this type of arrangement where applicable. Also make sure you have a Trust in place to help manage the sale or transition of the business and ensure your heirs do not get tied up in probate proceedings. Remember, Probate Sale is often synonymous with “Fire Sale.”

If you have sold a business, the proceeds from the sale might have vaulted you to a new level of wealth which could necessitate a full review of your Estate Plan.

Moving to Another State

While much of the focus on the estate tax is at the federal level, there is a wide variation in state death taxes. Florida does not have one, but Tennessee and several others do. If you move to another state it is wise to consult with an attorney knowledgeable about your new state's situation and, if needed, adjust your estate planning documents accordingly.

Health Issues with Yourself/Family Member

You need to have legal documents in place where you appoint another to make health care related decisions for you if you are unable to. Without them you may not get the care you need and proper care in a timely manner. Further you may be kept on life support at a time or condition that you would not have authorized if given the chance.

What about incapacity and the possible need for long-term care? Properly drafted legal documents can help protect your assets for your spouse or family and help you get the care you need as opposed to the care the court or social workers decide for you.

The Bottom Line

Many of us have specific desires in terms of leaving our wealth and possessions to heirs. An Estate Plan is the vehicle by which this is done.  Specific techniques vary widely based on our circumstances. Estate planning is not a set-it-and-forget-it proposition. As situations change you may need to revisit your Estate Plan to ensure that it still meets your needs. An Estate Plan is a vehicle, like your car, except that it takes your estate where you want it to go.  And like a car, your Estate Plan is subject to a schedule of maintenance.  In this case, your schedule is not determined based on mileage, but on events and life changes.  A good financial advisor will prompt their clients to do this periodically as part of financial planning reviews.