When Should You Revise Your Will or Trust?

undefinedOver two million people die each year, many of whom never signed the basic documents needed to protect their loved ones. You may have already taken this important step. The question for you now is: when do you need to need to revisit your estate plan?

Both a will and a living trust can be used to transfer assets, and each has unique uses and features. For example, only a will can name guardians for children who are minors. And unlike a will, a living trust can take effect while you are alive, so it can be used to hold assets for your benefit if you become unable to manage them yourself.

These documents, along with the rest of your estate plan, should be reviewed at least every five years, however there are changes that occur in your life which can also create a need for you to review and possibly make changes in your estate plan.

Here are some of those times when changes may be required:

New or Impending Good Fortune.

If you have recently had a significant increase in your income, cash or other assets, resulting from a new job, promotion, inheritance, investment growth or otherwise, you should review your estate plan.

As your current finances and potential estate grows, you should re-examine how your estate plan is distributing the assets to make sure it is still right for your situation, or needs to be adjusted to consider the increase in asset values and the tax consequences of how your plan currently distributes them.

Financial Setbacks.

Likewise, a decrease in your finances can also create some unexpected estate-planning opportunities. For instance, a combination of lower asset values and a decline in interest rates may reduce the tax cost of making lifetime transfers, whether through gifts or intra-family transactions.

Change in committed relationships.

If you get married, divorced or split up, you should not procrastinate about changing your plan. This applies not only to your will or living trust, but also to assets that pass outside of these documents, such as retirement assets, life insurance and savings bonds, as well as jointly titled bank accounts, brokerage accounts and real estate.

While the law can provide some recourse if you forget to change the paperwork – say for your life insurance or IRA – when you get married. But even where this fallback exists, your spouse may wind up with less than he would have received if you had changed the forms to make him the beneficiary. Divorce poses special complications, as I wrote here.

Heading For A Divorce

The time between a separation and divorce can be problematic, estate-wise. By law, spouses are entitled to inherit a minimum portion of each other’s assets, and unless they waive that right, it continues until the divorce is finalized. If you have separated, you may want to consider revising your will to leave the soon-to-be-ex no more than the required minimum.

After a Divorce is Finalized.

Estate planning during divorce is often a temporary measure. Once the divorce is finalized, you must revisit your estate plan and see what needs to be updated in light of the divorce. Also, do not overlook those beneficiary designations. Many times, estates of people o]who have divorces die never having updated their executor, trustee of beneficiary designations. This is true for wills, trusts, insurance policies, health directives, investment plans and other important documents. Their ex-spouse is still named to inherit or manage these assets. This can result in litigation and serious unintended consequences.

Becoming a Parent.

For many people, this is the first occasion for doing an estate plan. Most importantly, be sure you name a guardian for your children and provide for them financially in case something happens to you.

Becoming a Grandparent.

In the flush of a grandchild’s birth, whether it’s your first or you are lucky enough to have many, “revise estate plan” might not be the first item on your to-do list. But when the excitement subsides, there are a few items you should check. Perhaps most crucial is that your will and any trusts that are part of your plan cover this new family member if his or her parents died before you (assuming, of course that’s your intent).

Death of a Spouse.

This life-altering event can leave you feeling emotionally adrift for a very long time. However, changes will likely need to be made soon after your spouses’ death. Things such as revisions to name new beneficiaries for any retirement assets you inherited from a spouse can help prevent your heirs from losing income tax benefits associated with those accounts.

Other documents may also need to be changed or created, such as a durable power of attorney, appointing a family member, friend or adviser whom you trust as an agent to act on your behalf in financial and legal matters if you become unable to because of illness or disability. And your health care directive, a document that authorizes another person to make medical decisions on your behalf, likely needs to be changed, as most married people give their spouses these powers.

Bad health.

The diagnosis of a degenerative disease or terminal illness throws families into crisis. During the rare calm moments in the eye of the storm, some people take comfort in getting their estate plans in order. This is the time to have your documents reviewed and brought up to date. This is especially true for powers of attorney and health directives, which help assure that you have designated someone else to take care of you and your finances.