The only thing that’s certain in life is change — which is why it’s essential to prepare for the unexpected with a smart estate planning strategy.
Maybe you have an estate plan but haven’t reviewed it in several years. Many people make the mistake of thinking estate planning is a one-off event when the opposite is true. Monitoring your estate plan on an ongoing basis is an essential part of the process.
If you’ve experienced a significant life or career change since you first created your estate plan, your documents may be outdated. If change is inevitable, why not prepare for it with a thorough and up-to-date estate plan?
Here are some of the most important factors to consider when updating your estate planning documents.
What is estate planning?
Estate planning is the process of detailing your final wishes, such as what happens to your assets when you pass away. Who inherits, how much, and when are questions typically answered in your estate plan. Estate plans can be as basic as a simple will and power of attorney (general and healthcare) or include more complex legal instruments such as trusts.
The contents of your estate plan depend on the complexity of your finances and personal life. If you’re someone with many different assets, you may need a more thorough estate plan to ensure you cover all of the bases.
For parents or caregivers for a disabled relative or elderly parent, your estate plan needs to provide special instructions to account for this, such as naming a guardian for your minor children or establishing a trust to provide ongoing support for your disabled relative.
What does an estate plan include?
Again, the contents of your estate plan depend on your finances and personal circumstances. However, several estate planning documents are helpful in almost every situation. Here are some of the most common estate planning tasks to review and help you confirm which documents you need to create or update.
- Creating a will
- Setting up a trust(s)
- Naming your beneficiaries/heirs
- Establish a health care power of attorney
- Guardianship designations for minor children
If you’re unsure which documents you need, take our short questionnaire to find out.
Who needs an estate plan?
Many have a false impression that estate planning is only for the wealthy — the truth is, getting your legal ducks in a row is beneficial for everyone. Whether you’re just starting out or nearing retirement age, you will need an estate plan at one point or another.
Though estate planning is helpful for everyone, it is crucial if you have dependents, such as a child, spouse, parent, or relative. Creating an estate plan ensures the people you care for most are taken care of after you’re gone.
When to update an estate plan?
One of the biggest mistakes in estate planning is not updating your plan.
You should update your estate plan once every 3-5 years or as your life circumstances change. Here is a list of specific life events that prompt people to create, update or improve their estate plans.
- Marriage or divorce
- The birth or adoption of a child
- Your child or grandchild turns 18
- You receive a financial windfall such as an inheritance
- Change in employment status due to a new job or starting or closing a business
- Need to name a new guardian for your minor children
- You purchased a home
- You change your mind about how you want your estate distributed
- Need to update your executor or trustee
- Change in federal or state tax laws
- Illness or disability of your spouse or child
- Change in your financial goals
Change occurs in our lives constantly, and your estate plan must also change.
Risks of not updating an estate plan
If you don’t keep your estate plan documents current, you risk your wealth falling into the wrong hands. Not having an up-to-date estate plan may increase the likelihood of someone contesting your will and delaying your estate settlement process.
An all too common estate planning scenario is when someone doesn’t update their will after having children or a divorce. Do you want all of your assets to go to your ex-spouse when you pass away? If not, it may be time to revisit your estate plan.
How to update an estate plan?
Most people review their estate plans periodically to ensure everything is still up to date. You can check your estate plan quarterly or annually — the timing doesn’t matter as much as getting it done. When you’re ready to update your estate plan, take some time to collect your thoughts and determine the updates you want to make.
Many people review their estate plans when they review their overall financial plan (typically once a year with their financial advisor). Between annual meetings, check on your plan at least one additional time. You never want to leave your estate plan out of date for too long.
Keep in mind that your updated estate documents will automatically revoke your prior planning documents. Sometimes it’s easier just to start over from scratch rather than create “amendments” that refer to your prior, outdated documents.
We understand that life gets busy, and it’s easy to put updating your estate plan on the back-burner. Keeping your will, power of attorney, and medical directive forms up-to-date is the only way to ensure your wishes are honored when you are no longer there to communicate them yourself.
If the process of updating your estate plan seems overwhelming, try starting with a tiny step in the right direction. Maybe today, that means locating your documents or researching estate attorneys in your area or online estate planning services.