Importance of Tidying Up Your Estate Plan So Your Loved Ones Face No Inconvenience
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The importance of estate planning has been talked about enough. Everyone knows how essential it is to have a will and yet you find many families stuck in court proceedings, sometimes even dwindling in family feuds. This happens when the will is not clear enough or has not been updated to accommodate new relationships and federal or state regulations. As a rule of thumb, financial advisors often advice people to update their estate plans after every major event in their family or whenever there is a new law or policy that is likely to affect their estate plan. Here are some important reasons why you should get started on tidying up your estate plan to ensure that your loved ones are not aggrieved later.
1. Obsolete documents
Imagine that you drafted your will in your 30s and let it lie around like that. There can be a possibility that you may have appointed a power of attorney many years ago and the person in question may not be around anymore or may have moved out of the state or the country. This can also be the case with the beneficiaries on your accounts. You must make sure to update the beneficiary on your retirement accounts, life insurance policies, etc., as well as in your will. If the beneficiary names don’t match, your will shall stand null and void and the court will simply go with the name mentioned on the account. Obsolete documents can be detrimental to your estate plan and cause your loved ones a lot of problems when you are not around anymore; so always keep all your documents updated.
2. New assets
You are likely to accumulate wealth, real- estate, life insurances, retirement accounts, etc., as you go through life. If you don’t keep updating your estate plan side by side, it would not contain half your financial assets. Every time you invest in a new asset, you must not only add it to your will but also discuss its tax implications with your attorney. You can also inherit someone else’s estate that can increase the total worth of your assets substantially. Large assets like real-estate can often warrant for additional tax planning so that the inheritors of your will do not end up losing its worth in estate taxes.
3. New relationships
Actor, Tanner Colby, once said, “You are the sum total of the people you meet and interact with, in the world.” You are bound to meet new people along the way and say goodbye to a few over the years. It is important to account for these changes in your estate plan too. If you have been married more than once, your estate plan should be immediately updated. A simple miss can result in your entire estate landing up in your ex- spouse’s lap.
Tidying up your estate plan is also extremely essential when you have multiple children from different marriages. Some of these may be your biological children and some, your step- children. Most people just leave their wills open ended by using generic terms like ‘all my children’. You must have clear provisions in your will and specify the names of each of your children. Keep in mind the needs of all your kids and their personalities. If a child is suffering from a disability, you should consider setting up a disability trust. If a child is a minor, you can set up a minor’s trust fund, so the estate is protected until the child is a certain age. You can also have grandchildren in the future. You must account for these changes too.
4. Predeceased beneficiaries
If a beneficiary on an account predeceases you, you will have to either redistribute your estate among the remaining beneficiaries or rename a new beneficiary. Many retirement accounts and life insurance policies give the option of specifying a back-up beneficiary. Make sure to align these correctly to your estate plan as well.
5. Changing rules and regulations
Changes in federal and state laws can leave provisions of your estate plan obsolete. Take for instance the Setting Every Community Up for Retirement Enhancement or SECURE Act of 2019. The new Act introduced new limitations to life expectancy payouts for inherited retirement accounts. Under the Act, beneficiaries can now enjoy inherited retirement plans for a longer duration. The distributions can also be spread out as per life expectancies and can grow tax- free. The Act increases the required distribution age from 70½ to 72. In addition to this, the owners of the account also no longer have the burden of tax- fillings in their lifetimes. These changes can make a lot of difference to existing estate plans. Every time a similar law or act is passed, you must discuss its implications with your attorney.
6. Possibility of moving to a new state
Estate planning laws are not uniform across the country and can differ from state to state. Some states have mandatory rules in place about the percentage of estate that a spouse must inherit. Some states also have estate taxes. If you move states, you need to updates documents like power of attorneys, living wills, advanced medical directives, etc. It is also important to update your legal address if you move to a new state. For example, if you have a substantial amount of estate in a State A and move to State B, you may still be charged state taxes from State A, if you do not change your legal residence to State B.
7. Changing times
It is not just changes in law or your family dynamics that can coax you to make alterations to your estate plan. As time passes, your desires and thoughts may change and evolve. If your kids are successful and financially sound, you may want to leave your estate to charity. It is also possible that you may have drafted your will when your children were little and as they grow up you may have some reservations to adding them to your will. In these cases, parents often set up trust funds with clear instructions on how their estate funds can be made available to their children. The passage of time can bring in diverse situations, according to which you may like to modify your will from time to time.
To sum it up
The goal of estate planning is to ensure that your family and loved ones are not put through any inconvenience when you are no longer around. Simple misses here and there, can end up costing them your lifetime’s earnings. Sometimes ill devised estate plans can also break up families and start sibling rivalries. But regular revisions and modifications to your will every few years can ensure that your estate is protected and goes to its rightful inheritors.
If you think it is time to tidy up your estate plan, consult financial advisors for their guidance on how to keep your estate up to date at all times.