With your estate plan successfully implemented, one final but critical step remains: carrying out a periodic review and update.
Since you implemented your estate plan five years ago, you got divorced and remarried, sold your house and bought a boat to live on, sold your business and invested the money that provides you with enough income so you no longer have to work, and reconciled with your estranged daughter. This scenario may look more like fantasy than reality, but imagine how these major changes over a five-year period may affect your estate plan. And that's without considering changes in tax laws, the stock market, the economic climate, or other external factors. After all, if the only constant is change, it isn't unreasonable to speculate that your wishes have changed, the advantages you sought have eroded or vanished, or even that new opportunities now exist that could offer a better value for your estate. A periodic review can give you peace of mind.
When should you conduct a review of your estate plan?
Large estates - every year
Persons with large estates (over the applicable exclusion amount) should review their plan annually or at certain life events that are suggested in the following paragraphs. Not a year goes by without significant changes in the tax laws. Staying on top of these will yield the best results.
Small estates - every five years
Persons with smaller estates (under the applicable exclusion amount) might need to only review their plan every five years, or following changes in life events. These estates will not be as affected by economic factors and changes in the tax laws to the same extent a larger estate might be. However, your personal situation is bound to change, and reviewing and making appropriate updates at least every five years will bring your plan up to date with your current situation.
Changes in estate valuation
If the value of your estate has changed more than 20 percent over the last two years, you may need to update your estate plan.
You may need to review your estate plan if there has been a change in the value of your assets or your income level or requirements, or if you are retiring.
Changes in occupation or employment
If you or your spouse changed jobs, you may need to make revisions in your estate plan. Also, if you have changed beneficiary designations for any retirement plants at work (or for other retirement accounts), review and revisions to your plan may be advisable.
Changes in family situations
You may need to update your plan if: (1) your (or your children's or grandchildren's) marital status has changed, (2) a child (or grandchild) has been born or adopted, (3) your spouse, child, or grandchild has died, (4) you or a close family member has become ill or incapacitated, or (5) other individuals (e.g., your parents) have become dependent on you. For example, many states have a law revoking all or part of your will if you divorce or remarry.
Changes in your closely held business interest
A review is in order if you have: (1) formed, purchased, or sold a closely held business, (2) reorganized or liquidated a closely held business, (3) instituted a pension plan, (4) executed a buy-sell agreement, (5) deferred compensation, or (6) changed you employee benefit plans.
Changes in the estate plan
Of course, if you make a change in part of your estate plan (e.g., create a trust, execute a codicil, etc.), you should review the estate plan as a whole to ensure that it remains cohesive and effective.
After major transactions
It may be wise to review your plan if you have: (1) received a sizable inheritance, bequest, or similar disposition, (2) made or received substantial gifts, (3) borrowed or lent substantial amounts of money, (4) purchased, leased, or sold material assets or investments, (5) changed residences, (6) changed significant property ownership, or (7) become involved in a lawsuit.
Changes in insurance coverage
Making changes in your insurance coverage may change your estate planning needs, or may make changes to your plan necessary. Therefore, inform your estate planning advisor if you make any change to life insurance, health insurance, disability insurance, medical insurance, liability insurance, or beneficiary designations.
Death of trustee/executor/guardian
If a designated trustee, executor, or guardian dies or changes his or her mind about serving, you need to revise the parts of your estate plan affected (e.g., the trust agreement and your will) to replace that individual.
Other important changes
None of us has a crystal ball. We can't think of all the conditions that should prompt us to review and revise our estate plans. Use your common sense. Have your feelings about charity changed? Has your son finally become financially responsible? Has your spouse's health been declining? Are your children through college now? To be certain your estate plan remains responsive to your needs, you should give it some thought from time to time and consult with your advisors as necessary, or if you have any questions.