When Should You Review Your Estate Plan? 12 Life Events That Should Trigger a Review
Has any of this happened to you?
You got married. Had a child. Bought a home. Started a business. Changed jobs. Received an inheritance.
Life changed, but did your estate plan change with it?
Estate planning is often associated with significant wealth or something that needs to be addressed later in life. But estate planning isn't simply about how much money you have. It's about making sure your financial assets, family responsibilities, healthcare wishes, beneficiary designations and legal documents work together according to your intentions.
And one of the best times to review your estate plan is when something significant in your life changes.
Key Takeaways
An estate plan should be considered for review after significant changes involving your family, finances, property or business.
Common triggers include marriage, divorce, the birth or adoption of a child, purchasing a home, starting or selling a business, receiving an inheritance, changing jobs and significant changes in your financial situation.
An estate plan can also address what happens during your lifetime if illness or incapacity prevents you from managing your own affairs.
And having a will doesn't necessarily mean everything is coordinated. Beneficiary designations, retirement accounts, insurance policies, trusts, powers of attorney and business agreements may all need to work together.
What Is Estate Planning?
Estate planning is the process of organizing how certain financial, legal, healthcare and family decisions should be handled during your lifetime and after your death.
Depending upon your circumstances, an estate plan may include a will, powers of attorney, healthcare directives, beneficiary designations, trusts and other legal arrangements.
For business owners, estate planning can also overlap with business continuity and succession planning.
The objective isn't necessarily complexity.
It's coordination.
When Should You Review Your Estate Plan?
There isn't one life event that determines when everyone should update an estate plan.
Instead, significant changes to your family, assets, responsibilities or business should prompt you to ask whether your existing plan still reflects your intentions.
Has Any of This Happened to You?
Consider whether you have recently:
Gotten married
Had or adopted a child
Bought or sold a home
Started, acquired or sold a business
Changed jobs
Received a significant inheritance
Gone through a divorce
Experienced the death of a spouse, beneficiary, trustee or other important person in your plan
Started caring for aging parents
Experienced a significant increase or decrease in wealth
Moved to another state
Gone several years without reviewing your estate documents or beneficiary designations
If you answered yes to one or more, it doesn't automatically mean your estate plan needs to be changed.
It does mean that a review may be worthwhile.
Do I Need an Estate Plan If I'm Not Wealthy?
Estate planning and estate taxation aren't the same thing.
Federal estate tax concerns may apply only in certain circumstances, but estate planning can address issues affecting families across a much wider range of net worth.
Consider questions such as:
Who would manage your financial affairs if you couldn't?
Who could make healthcare decisions on your behalf?
Who would care for your minor children?
Who receives your retirement accounts and life insurance?
Are your beneficiaries still the people you intended?
Who knows where your important financial information is located?
What happens to your business if you're unable to operate it?
Those aren't exclusively questions for multimillionaires.
They're questions about control, protection and coordination.
Is Having a Will Enough?
A will can be an important component of an estate plan, but it may not control every asset you own.
Certain assets can transfer according to beneficiary or account designations rather than instructions contained in a will.
For example, retirement accounts and insurance policies generally pass to named beneficiaries. Certain brokerage accounts can also have transfer-on-death arrangements.
That's why beneficiary designations deserve particular attention.
Imagine that your will says your assets should be divided equally among your children, but an old beneficiary designation names only one child on a particular account.
The result may not be what you expected.
The documents aren't the plan. How the documents, accounts and beneficiaries work together is the plan.
Your Estate Plan Isn't Only About What Happens When You Die
Another misconception is that estate planning only becomes relevant at death.
Consider incapacity instead. If an accident or illness temporarily or permanently prevented you from making decisions, who could legally act for you?
Depending upon your circumstances and applicable law, planning might include documents addressing:
Financial decisions: Who can manage certain financial affairs?
Healthcare decisions: Who can make medical decisions when you cannot?
Access to healthcare information: Who should be authorized to receive certain medical information?
These aren't pleasant scenarios to contemplate.
But determining the answers when everyone is healthy is generally preferable to discovering the questions during a crisis.
Parents of Minor Children Have an Additional Consideration
For parents, estate planning isn't solely about transferring financial assets.
One of the most important questions may be:
Who would you want caring for your children if both parents were gone?
Then comes another question:
Who would manage the assets intended for those children?
Those may or may not be the same person. Parents may also need to consider how life insurance, retirement accounts, investment assets and other property fit into the overall plan.
This is where estate planning intersects directly with financial planning.
Business Owners Have Another Estate to Protect
For business owners, the planning conversation becomes even more interesting.
Ask yourself:
If something happened to you Sunday night, what happens to the business Monday morning?
Who can access critical accounts?
Who has authority to make decisions?
Who handles payroll?
What happens to your ownership interest?
Could your spouse or children unexpectedly become owners alongside your business partners?
Is there a buy-sell or succession agreement?
If there is, does the financial planning support it?
A business owner's personal estate plan and business succession strategy shouldn't operate independently.
One plan can directly affect the other. Don't Forget Your Beneficiary Designations
Beneficiary reviews are one of the simplest places to look for potential disconnects.
Retirement accounts, life insurance policies and certain other accounts can transfer according to beneficiary designations.
That means changing your will doesn't necessarily change the beneficiary listed on one of those accounts.
Consider reviewing beneficiary information after significant life events such as:
Marriage
Divorce
Birth or adoption
Death of a beneficiary
Job change
Retirement
Significant changes in family circumstances
Also consider reviewing contingent beneficiaries, not merely primary beneficiaries.
Estate Planning Should Be Part of Your Overall Financial Plan
This is where we believe the conversation often gets fragmented.
An attorney may prepare the legal documents.
A CPA may advise on tax considerations.
An insurance professional may help address risk.
An investment advisor may manage retirement and investment accounts.
A business attorney may prepare a buy-sell agreement.
Every individual piece could make sense on its own.
But there is still a critical question: Does everything work together?
At EnvisionVest, we view estate planning as one component of a broader financial planning process.
Our role isn't to replace the estate planning attorney or tax professional. It's to help identify financial planning issues, coordinate the different components of the client's financial life and work with the appropriate professionals when legal or tax advice is required.
One game plan. One team. No gaps.
A Simple Estate Planning Exercise
You don't need to begin by asking: “Do I need a trust?”
Start with five simpler questions:
1. Has something significant changed in my life?
2. Do my current documents still reflect what I want?
3. Are my beneficiary designations current?
4. If I couldn't make financial or healthcare decisions tomorrow, do I know who could?
5. Do my estate plan, financial plan and, if applicable,
business succession plan work together?
If you're uncertain about one or more answers, you've identified something worth reviewing.
Frequently Asked Questions about Estate planning
How often should I review my estate plan?
Rather than relying exclusively on a fixed schedule, consider reviewing your estate plan following significant changes to your family, finances, property, residence or business. Periodic reviews can also help identify beneficiary designations or documents that have become outdated. Some states pass laws that could have an impact on your estate documents, so at a minimum I see most reviewing their estate documents every two years.
Do I need an estate plan if I don't have a lot of money?
Estate planning isn't limited to people facing federal estate taxes. Planning can address incapacity, healthcare decisions, guardianship considerations, beneficiary designations and the distribution of property regardless of whether federal estate tax is a concern.
Does my will control my retirement accounts?
Generally, retirement accounts transfer according to their beneficiary designations rather than instructions contained in a will. This is one reason coordinating beneficiaries with the overall estate plan is important.
However, there could be unique circumstances, such as those with children with special needs. Careful consideration might be warranted and there are trusts that can help with retirement accounts and coordinating the benefits to help with the special needs child.
What documents are typically part of an estate plan?
Depending upon individual circumstances and state law, an estate plan may involve a will, financial power of attorney, healthcare directives, beneficiary designations, trusts and other legal documents or arrangements. There might be a need for a special type of trust for unique situations and this might require doing a comprehensive review to make sure that everything is in good order.
When should beneficiaries be reviewed?
Consider reviewing beneficiaries after significant life events such as marriage, divorce, birth or adoption, death of a beneficiary, changing employers or major changes in family circumstances. If you work for a company that has its annual enrollment meeting yearly, this is a great opportunity to check your benefits and all other accounts you may have as a way to make sure everything is set up as you desire it to be.
Does a business owner need additional estate planning?
Business ownership can introduce issues involving succession, ownership transfer, and continuity. Depending on the business ownership, there could be a need for buy sell agreements and funding arrangements. These considerations should generally be coordinated with the owner's personal estate and financial planning team. Coordination between subject matter experts is really important.
Who should be involved in estate planning?
Depending upon the complexity of the situation, estate planning can involve an estate-planning attorney, financial advisor, CPA or tax professional, insurance professional and other specialists. Coordination among those professionals can help identify inconsistencies between legal documents and financial arrangements. While there are plenty of free versions for Do-It-Yourself estate planning document drafting, The issue many times results in improper implementation and could end up being invalid and a waste of time.
It makes great sense to include your family members after the drafting and execution of the documents have been implemented. This helps reduce confusion and to honor your wishes.
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