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Is it time to revisit one's estate plan?
It can be hard enough to realize the value of an estate plan. Those who realize such value can still fall into the trap of believing that such a plan is a "one and done" proposition, a set of documents that only needs to be executed once and requires no maintenance. Unfortunately, nothing could be further from the truth. Estate plans should evolve, and just as one's financial situation and family members may change, so should the corresponding estate planning documents. Luckily, there are certain milestones that can hint that an estate plan should be given a tune-up, and these life markers are easy to spot.
Changes in Marital Status, the Family Members or the Intended Beneficiaries
It goes without saying that a spouse should be recognized in an estate plan in the event of a marriage. The extent to which each spouse benefits from an estate can be determined and set forth in the estate planning documents. Kentucky law gives the spouse the right to renounce the will of the deceased spouse and to take, essentially, a one-half share in the estate, unless such rights have been waived in the appropriate documents. On the other hand, divorce should prompt a review of an estate plan to preclude any unintended beneficiaries, to clarify one's current wishes, and to reallocate assets that would have gone to the former spouse prior to the divorce. It is also important to remember to review beneficiary designations on retirement and other accounts after a marriage or divorce. These items can slip through the cracks, and failure to make changes can sometimes lead to unintended results.
Just as with marriage, the birth or adoption of a child or grandchild adds another potential heir to the mix, and a reallocation of the estate may be desired. Children and/or grandchildren prompt additional consideration, such as the desire to establish an educational trust or address the needs of a disabled child or grandchild by creating a special needs trust. Any addition to the family members or issues should prompt one to revisit the estate plan.
A death of a family member or other beneficiary can have a significant effect on the plan as well. A well-drafted estate plan will most likely not undergo such a catastrophic failure after the death of a single beneficiary, but it is likely that the plan will need at least a minor adjustment to account for the loss.
Changes in the Value of Assets
Any material change in the value of one's assets should trigger a review of the estate plan, as the typical intended goal of an estate plan is to preserve as much of the estate as possible while transferring it to the beneficiaries. Estate planners craft an estate plan according to the size and type of assets contained within the estate, and certain changes to those categories may require a new method of estate preservation to avoid unnecessary estate and gift taxation as well as other penalties that may accrue. On the flip side of the equation, a diminution of the estate or a material change in the types of assets may make estate preservation moot.
Changes in Jurisdiction
Different states have different laws regarding the validity of wills and trusts; likewise, distribution imposed under the intestacy laws varies from state to state. One should also be cognizant of major differences in inheritance and gift taxes of a particular state. A change in residency should bring the estate plan back to the forefront to assure that it is both valid and properly accounts for a change in jurisdiction. Further elements to consider are state statutes regarding the durable power of attorney provisions and any advance directives.
Changes in Work Status
The move from earned income to fixed income, whether through retirement or disability, is another chance to reevaluate one's estate plan to ensure that it provides sufficient income. The best designed estate plans that once restricted income and principal as a means to preserve the estate can cause financial struggles down the road. Not only does it no longer accomplish the intended goals, it can also be harmful to the very person establishing the plan. Changes in career, while not quite as likely to produce as profound effects on estate plans, may be enough of a reason to reevaluate if a significant boost in salary or a new life insurance benefit takes effect.
Changes in the Law
Finally, changes to both federal and state law in the areas of income, estate, gift and inheritance taxes should encourage a substantial review of one's estate plan. While the average citizen is not likely abreast of every change in the law affecting his or her estate, competent estate planning attorneys stay current with changes in the law, and can evaluate one's estate plan in light of such changes. Periodic review by an attorney is the ultimate form of preventative maintenance for an estate plan, and the attorneys at McBrayer can help.
Terri R. Stallard is a Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC and practices from the Lexington and Louisville offices. Ms. Stallard concentrates her practice in the areas of estate planning, trust and estate administration, and charitable planning. She is licensed to practice law in Kentucky, Georgia, and Tennessee, and in the U.S. Tax Court. She can be reached at firstname.lastname@example.org or (859) 231-8780, ext. 258.
This article is intended as a summary of federal and state law and does not constitute legal advice.