Is It Time to Update Your Estate Plan?

There are certain events that call for a fresh look at your estate plan.

                  “Nothing endures but change.” – Heraclitus of Ephesus

The quote may be 2,500 years old, but the ancient Greek philosopher’s statement remains true – change is still the only constant in life. Spouses get divorced, loved ones pass away, new babies arrive. Unfortunately, many people don’t always keep up with the important details that should accompany the big changes in their lives.

Your Last Will and Testament and Living Trust should always be tailored to your current life situation, not the one you faced five years ago, or maybe even just last year. While it is usually unnecessary to make frequent changes to your documents, there are certain events that might call for a fresh look at your estate plan.

While the following list is not inclusive, here are the most common reasons for you to contact our office for an estate planning consultation, review and/or update:

You change your mind about who you want to inherit your property

If you created a revocable living trust, you can change or revoke it at any time. Changes to your beneficiaries can be made by amending the trust’s distribution provisions or by doing a complete restatement of your trust.

The legal heirs and the beneficiaries of a revocable living trust have the right to receive a copy of the trust upon the trustor’s death. The benefit of a restatement is that when you pass away, only the restatement is shared with them. With an amendment, they will be entitled to see earlier versions of the trust. The choice will depend on the changes you wish to make, if it would be prudent for your beneficiaries to know what you intended to leave them originally, and whether the amendment could lead to future litigation.

You should also periodically review your life insurance and retirement account beneficiary designations, to make certain that they reflect your current wishes. I once had a client who was certain that his retirement account beneficiary designation was up-to-date, but it turned out that his ex-wife was still the 100% beneficiary!

You have a change in marital status

Any change in marital or civil status warrants a meeting with your estate planning attorney.

In California, your spouse is legally entitled to claim a portion of your property after you die, unless you have a written agreement to the contrary. This could be as much as a half of what you own. If you are not married, your partner will inherit nothing from you unless they are specifically named in your Will or Trust.

You should always make a new will or change your trust after a divorce. A final judgment of divorce (or an annulment) generally revokes any gift made by your will or trust to your former spouse. However, the failure to reflect this change in your documents could lead to costly litigation upon your death.

You have a new child (through birth or adoption)

Even if your documents state that your estate will go to your “then living issue,” the birth or adoption of a child generally warrants an update to your documents. This can be done through a simple amendment to the “Family of Trustor(s)” section of your Trust and the “Family of Testator” section of your Will – and perhaps to your distribution provisions as well (depending how it was previously worded). A pretermitted (omitted) heir who is legally entitled to inherit from you can take legal action against your Will, unless the document provides that they have been intentionally disinherited.

Note that unless you legally adopt children – including stepchildren – they have no right to inherit from you. If you want to leave a stepchild or step-grandchild a share of your property, you will need to specifically include them your estate plan.

One of your named successors or beneficiaries dies

Although your attorney should plan for contingencies (alternates) in their drafting, the death of a named beneficiary, successor trustee or guardian generally warrants an amendment so as to avoid any possible confusion – and administrative hassle – in the future.

You or your spouse develops a serious health problem

If you or your spouse develops a serious health problem, you may wish to do a thorough review of your Advance Health Care Directive to make sure that it still complies with your wishes regarding medical treatment during incapacity.

If you or your spouse needs to enter a nursing home, Medi-Cal planning may also be warranted.

There is a change in the law that necessitates document modification

The law may change, making some of the provisions in your trust obsolete and possibly counterproductive. For example, when the estate tax exemption threshold was still relatively low a little over a decade ago, many married couples needed an AB Trust to minimize or avoid estate taxes. When the first spouse died, the trust assets were split into two trusts and one of the trusts became irrevocable, meaning that it could no longer be changed. Furthermore, each trust required its own, separate tax return every year.

There are a number of married couples with estates over $2 million – but less than the current estate exemption amount (currently $11.4 million per person) – who haven’t updated their trust in many years and still have the AB provisions in their trust document. Now that there is no estate tax for anyone with assets below $11.4 million, unless you have another reason to subject yourself to the AB trust rigamarole, AB provisions should be removed.

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While there are certain events that might call for a review and/or possible revision to your will or living trust, in other situations all you need to do is a periodic check to make sure that your assets are property titled and that your asset lists are up-to-date:

You refinance your home or purchase a new piece of real estate

When interest rates are low, many people refinance their homes and rental properties. More often than not, title is taken out of trust during the refinancing process – make sure that title is placed back in! If the title company does not do it, notify your estate planning attorney. The time and cost to prepare a new deed is minimal.

If you purchase a new piece of real estate, make sure that you take title as trustee(s) of your trust, or have your attorney make the transfer immediately after closing.

You change a bank or brokerage account

Other situations warrant a simple update of your asset lists and beneficiary designations for your life insurance and retirement accounts. Your asset lists should include Schedules A, B and C to your trust, and your Schedule of Retirement Accounts and Other Non-Trust Assets.

The asset schedules provide extra assurance that if an asset is mistakenly not titled in your trust, it may be transferred to the trust after your death through a court (Heggstad) petition rather than being subject to probate. All of the Schedules provide your Successor Trustees/Executors with an up-to-date list of your assets and their approximate values, that will help relieve some of their administrative load upon your death or incapacity.

You should update your asset lists at least once per year, and send copies to your estate planning attorney so that their files are kept up-to-date.

Remember to take title to all new accounts as Trustee of your Trust!

It has been a while since your documents were prepared

Keep your estate plan up-to-date with an annual review! Choosing a date for an annual review of your documents is a great way to make sure that your estate plan always reflects your current wishes. You can do this review on your own:

  1. Start by updating your asset schedules (remember to send a copy to your attorney).
  2. Then look through the family, distribution, and successor trustee provisions of your trust to make sure that they are still relevant.
  3. Read through your Advance Health Care Directive to make sure that its provisions still reflect how you would like to be cared for during your incapacity.

Remember to always take notes on a separate piece of paper, marked “possible changes?” or something else indicating that these are changes that you are merely considering. You should never write on your documents, even on copies, as this could later result in a will contest. If you need changes made to your estate plan, contact your attorney.

Meet periodically with your estate planning attorney

Working with an estate planning lawyer is not a one-time event. It is usually a good idea to meet with your attorney at least once every four or five years to review your documents. This can generally be done in a one-hour meeting.

The estate planning and tax attorneys at Moskowitz, LLP can help you establish a new estate plan or work with you to modify an existing one. Contact our San Francisco office to review your estate planning needs and ensure that your affairs will be properly managed.

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