Life changes quickly, and an outdated estate plan may create challenges for those you care about most.
- Regular reviews help keep your estate plan aligned with your current wishes and circumstances. Major life events often signal it’s time for an update.
- Changes in assets, tax laws, or personal priorities may require adjustments to ensure your plan remains effective and minimizes potential legal or tax complications.
- Updating involves reviewing all documents, consulting professionals, and communicating changes to beneficiaries, executors, and other key individuals.
- Avoid common pitfalls such as outdated beneficiary designations, inaccessible documents, and overlooking digital assets to protect your legacy and reduce stress for loved ones.
Many people breathe a sigh of relief after creating an estate plan, but checking this off as a task that's “finished” may create unintended problems down the line. As time passes, your circumstances may change. Shifting relationships, evolving financial situations, and updates to relevant laws could affect your original plan.
Periodically reviewing and updating your estate plan helps to keep it aligned with your wishes and may reduce the risk of complications for loved ones. So, how often should you do this? While every situation is different, certain key events often serve as a reminder that it's time to take another look.
When and Why Should You Update Your Estate Plan?
An estate plan works best when it reflects your current circumstances and priorities. While you might not think about estate planning daily, certain situations may create gaps between how the documents would be executed and your actual wishes. Here are a few common circumstances that often trigger the need for a review.
Relationship Changes
Family dynamics may shift considerably over the years. Changes such as marriage, divorce, birth/adoption, and death may affect how your estate will be distributed. Also consider cherished pets who may need caregivers and, possibly, trusts.
Asset Changes
An increase or decrease in the value of your assets over time may require a careful review of your plan. Tax consequences may differ depending on the value of the estate. Major asset changes, such as starting a business or receiving an inheritance, may require significant updates or additional documents.
Change of Location
Estate and probate laws vary significantly between states, and your will follows the rules of your state of residence. Differences in probate procedures, property transfers, and tax obligations could potentially affect how your estate is handled. Reviewing and updating your documents may help prevent unwelcome surprises. Working with an expert who is well-versed in the state's laws may also help identify opportunities to optimize the estate plan.
Tax Law Changes
When state or federal tax laws change, consulting with your legal and tax advisors may help you better understand how these changes could affect you and your beneficiaries. In some cases, an update to the plan may help reduce tax liability.
Change of Heart
You may decide to change parts of your plans for personal reasons. Relationships or priorities may have changed, or the people you originally chose as executors or beneficiaries might no longer be the right fit. You may also wish to include a charity or organization that has become important to you, especially as your assets grow.
How To Update Your Estate Plan
Following a structured process when updating your estate plan helps ensure nothing is overlooked. These six steps may help make the task less overwhelming.
1. Review Existing Documents
Begin by gathering all of your current estate planning documents and carefully reading through them. Make a note of any outdated information, changed circumstances, or provisions that no longer match your wishes. Pay attention to named individuals, asset descriptions, and specific instructions that might need adjusting.
2. Identify Needed Changes
Make a list of anything that needs to be updated based on your current situation. This may include naming new beneficiaries, changing asset allocations, or updating contact information. If the estate plan includes healthcare documents, you may also wish to update preferences regarding medical care.
3. Consult With Professionals
Work with an estate planning attorney to discuss proposed changes and ensure you understand the implications. A tax professional and financial advisor may also provide valuable insights.
4. Update Legal Documents
Depending on the changes, you may need to update multiple documents, including:
- Last Will and Testament: Updates beneficiaries, executors, guardianship provisions, and asset distribution instructions. Also nominates executors/personal representatives and guardians for minor children.
- Financial Power of Attorney: Changes who can handle your financial affairs while you are living.
- Healthcare Power of Attorney: Updates who makes medical decisions on your behalf and provides specific instructions related to your medical preferences.
- Living Will: Revises your preferences for end-of-life medical care and treatment.
- HIPAA Waiver: Ensures the right people can access your medical information when needed.
- Revocable Trust: Allows a grantor to manage and control assets during their lifetime, make changes as needed, and name another individual to take over management if they die or become incapacitated. Also indicates who receives the assets after the grantor's death. Similar to a will, but avoids probate.
5. Communicate Changes to Relevant Parties
Once you have completed the updates, notify all relevant parties about changes that affect them. This may include new or removed executors, healthcare agents, guardians, and beneficiaries. Taking this step now may prevent confusion later. It also allows all parties to ask questions about their roles and ensure they fully understand your wishes.
6. Keep Updated Documents Secure
Store your revised documents in a safe, accessible location and make sure trusted individuals know where to find them. For an added layer of safety, consider leaving copies with your attorney and providing relevant parties with instructions on how to retrieve them when needed.
Avoid These Common Pitfalls
Even a well-structured estate update may fall short if certain details are overlooked. Taking steps to prevent these common oversights may save you and your loved ones time, expense, and frustration.
Forgetting To Update Beneficiary Designations
Some assets, such as retirement accounts and life insurance, pass directly to the named beneficiary through the terms of the account instead of through your will. Joint accounts and other property held with someone else often pass automatically to the surviving owner. If these designations are outdated, assets may go to someone you no longer intend. Always review and update them when making changes to your estate plan.
Failing To Inform Key Individuals
While you're not required to notify anyone named in your documents, it's helpful to let them know in advance. People named in roles that take effect while you're living, such as healthcare agents or financial power of attorney, should understand their responsibilities. Those named in your will, such as executors or guardians, only act after your death. However, they may benefit from knowing your intentions ahead of time. Surprises during a crisis create unnecessary stress and confusion. Communicating ahead of time allow you to let individuals know that they have a role, confirm they're willing to fulfill it, and make sure they understand your wishes.
Storing Documents in Inaccessible Locations
If your updated documents can't be found when needed, your efforts may be wasted. Store them securely, but also make sure trusted individuals know where they are located and can access them upon your passing.
Overlooking Digital Assets
Online accounts, cloud storage, social media profiles, and cryptocurrency all require clear instructions for access and management. Without proper planning, these assets may be lost or inaccessible. Create an inventory of your digital assets and include instructions for accessing them. Consider whether you want these assets preserved, transferred, or deleted.
Ignoring Recent Legal or Tax Changes
When estate and gift tax laws change, certain provisions in your plan may no longer make sense. Updates that do not account for these changes may lead to unintended tax consequences or administrative challenges.
Creating Inconsistencies Between Documents
Your will, trust documents, beneficiary designations, and powers of attorney should be consistent. Otherwise, conflicting instructions may create legal disputes, resulting in unnecessary costs and delays. Make sure your estate attorney is aware of, and has reviewed, all estate-related legal documents.
Keep Your Estate Plan Working As Intended
While updating your estate plan does require some effort, doing so helps protect your loved ones and your legacy. Keeping documents current and accurate may prevent confusion and delays during an already stressful time. If you've experienced a significant change in your life, finances, or priorities, it may be time to schedule a review.
When To Review Your Estate Plan – Checklist
In addition to regularly reviewing your will and estate planning documents every three to five years, you should also consider reviewing your estate plan when these situations and life events arise:
- Upon birth or adoption of a child, grandchild, or other family member
- Following a marriage or divorce
- When someone named in your will passes away
- When a child or grandchild needs educational funding
- When children, grandchildren, or other heirs reach adulthood
- Upon changes in your executor’s, guardian’s, and/or trustee’s circumstances
- When the value of your estate significantly increases or decreases
- The acquisition or disposition of a significant asset
- Upon starting a business or when contemplating the transfer of a business
- Following changes in tax laws
- When you are approaching age 72 (the age when you are required to begin taking distributions from your individual retirement account, 401(k), or other qualified plan)
- After a move to a different state
- If you are diagnosed with a chronic or terminal illness or disability
For more information, please contact your PNC Private Bank®advisor.
