When to Update Your Estate Plan: Top 5 Life Events

Your estate plan should be updated after major life events to ensure that the language in your estate planning documents (wills, powers of attorney, trusts, etc) reflect your personal and financial situation and properly handle the new possibilities created by changes in your life. Your estate planning attorney should be able to handle any necessary minor changes through a “codicil” to your will – a document amending certain sections of your existing will to deal with the new circumstances. In some cases, a new will and other documents may be necessary to accommodate all the potential legal ramifications of such changes. Reassessing your estate plan should be done whenever you reconsider your financial situation and at least every 5 years or so regardless of major events, but here are my top 5 most common life events that should get you thinking about the adequacy of your estate planning and encourage you to speak to your attorney about the necessity of amendments:

1. Getting married – Even if it is your first marriage and you have no kids, it is a good idea to begin discussing your estate plan with your spouse. If you die without a will in Washington state, your spouse gets all of the community property and a portion of your separate property depending on if you have children or parents that survive you. Is this appropriate for you if you are newly married? Do you want to leave your separate property all to your spouse since you might not have much in the way of community property yet? Do you want all of your separate property to go to someone else, such as a sibling or other family member that has special needs? What about your life insurance proceeds and retirement accounts with named beneficiaries – do you need to update or change those? If you are getting married and have children from a previous marriage, then discussing your estate plan with an attorney is a must.
2. Filing for divorce – Even though Washington state law automatically cuts off all testamentary gifts to a divorced spouse in a pre-existing will, this is only triggered by a final divorce decree and NOT by a filing for separation. It is important to reconsider how you want your estate to be distributed after a divorce, especially since most wills name the spouse as the primary, if not sole, beneficiary and not much thought goes into who the secondary residual beneficiaries will be. Powers of attorneys and trust documents will also need to be re-executed with new and appropriate persons named as attorneys-in-fact and trustees.
3. Having children – If you have put-off your estate planning until later, having a child is certainly the time to get motivated. Naming a guardian(s) for your minor children should anything happen to both parents is one of the most important parenting decisions you can make. Sitting down with your spouse/partner and an attorney to discuss who would be an appropriate guardian, determining if they should be responsible for both the person and finances of your children or if selecting different individuals to handle those two different roles is more appropriate and then deciding how best to protect your childrens’ future with assets and insurance coverage is a fundamental parenting duty.
4. Significant change in financial situation – Be it an inheritance, new job or promotion, investment, gift, retirement or otherwise, a large in-flow or expected entitlement to cash can have significant effects on your estate planning. Tax implications are potentially the most significant area of concern for this category of life events, but others include deciding how to divide up your estate based on a different scale of assets and setting up trusts to efficiently invest your new wealth.
5. Changes to state or federal estate tax laws – While not personal events, changes to the law can have significant impacts on your estate planning. The federal estate tax scheme will almost certainly change between now and the beginning of 2013, when the current exemptions and rates are scheduled to end and revert to the 2002 levels. Either congress will act to change or extend the current law or they will fail to act, as happened during the whole of 2010.  In either case, it may be necessary to adjust or change your estate plan depending on what happens. Additionally, Washington state estate tax rules may change from the current $2 million exemption.