Once it’s been created, an estate plan should be considered a living document. While the existing plan should be flexible enough to cover a wide range of financial and familial outcomes, estate plans also need to be revisited when major life changes intrude.
But these changes also provide a chance for an opportunistic wealth manager to be proactive with his or her clients, helping them anticipate problems before they arise. Here are some life milestones that would warrant a second look at an estate plan.
Changes in family status
Marriage, even a remarriage, obviously offers up a whole new range of estate planning options, but so does divorce. Following a divorce, the client will probably want to remove the former spouse as a beneficiary from any trusts, insurance policies and retirement savings plans. The former spouse will likely need to be relieved of any fiduciary duties as well. You may want to remind them to review their will, too.
The death of a spouse or other type of beneficiary can trigger a whole host of estate plan changes. It’s a difficult time to be dealing with something that can seem trivial, but it’s important to remove the deceased’s name from any place in which he or she is listed as a beneficiary as soon as is practical. Otherwise, after the account holder’s death, a successor trustee will need to secure an original death certificate for the predeceased heir. That’s an awful lot of time and hassle for something that could have been easily obviated.
On the other hand, if the client has another child, or even if their beneficiaries have a child, you may want to review the planning to ensure the new dependent is fully accounted for. Or in some cases, the plan holder may want to be assured the new dependents are not covered.
The simple act of growing up may warrant changes in a plan. As minor children turn into adults, they may be ready to be named as fiduciaries, or the client may want to change his or her beneficiary status. Or a beneficiary might play less and less of a role in the client’s life as he or she gets older, leading to a diminution of the beneficiary’s status. It’s worth periodically revisiting the estate plan to make sure the property is still going to the heirs who deserve to have it.
Changes in financial status
For most people who have advanced far enough in life to require a comprehensive estate plan, there won’t likely be too many more significant changes in financial status. One very common one, however, is the sale or disposition of a business or practice, which happens at the end of many a lucrative career. The assets may need to be treated differently both for estate planning purposes and for immediate tax purposes.
If the plan holder purchases or otherwise acquires a business, of course, that might require a rewrite of an existing estate plan. It might make sense at that point to set up a revocable living trust to keep the newly acquired assets out of probate. The estate plan holder may also want to segregate the assets from his or her marital property to avoid losing them in case of divorce.
There can be other significant changes in financial status as well, with potential windfalls from the stock market or extraordinary business success — or sizable setbacks, as we saw with the market’s performance in 2008-09. This could potentially be enough to move an estate into the taxable bracket (or out of it) and should be monitored by a proactive wealth manager.
There are also more personal, nonfinancial changes that might warrant revisions to an estate plan. One common change is moving to a new state, which so many people do on the occasion of their retirement. Estate laws vary in different states, so if a client sets up a residence in another state, it’s important to find out what the new rules will be for them.
The onset of a serious illness, on the part of either the estate plan holder or a beneficiary, may be cause for revisions as well. If anyone in the family seems to be in need of long-term or nursing care, that could not only require a sizable expenditure that needs to be planned for, but could also play serious havoc with the size of the resulting estate.
Then there’s always just a simple change of heart. Maybe the client has begun thinking about leaving a sizable legacy to a local hospital or arts foundation; maybe one of his or her children has become more (or less) worthy in their eyes. There’s no way for a wealth manager to know about these changes without regular communication with the client.
It’s always a good idea to check in with people to ensure their long-term wishes haven’t changed. Even if they haven’t, they’ll appreciate that someone cares enough to ask.
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