By Mary Ellis Patton
Edited by Carolyn L. Kenton
At our firm we recommend clients personally review their estate plan every two or three years and have an attorney review them every five years or whenever they experience a major life-event.
There are two reasons why. First, major life-events can affect your existing estate plan. Secondly, the laws change and generally citizens are unaware of these changes and how these changes will personally affect their estate plan.
1. Major Life Events
Any major life-event should trigger a review of your estate plan by an attorney. These life events may include deaths, births, marriages, remarriages, divorce, inheritance, a new business interest, or a change in health.
Death of a loved one. Unfortunately, the death of a loved one not only causes you to experience grief, but it can break your estate plan. If a beneficiary of your estate predeceases (dies before) you, there may be unintended consequences. Depending on how your will is worded, your bequest could lapse, go to another unintended person, or could go to that beneficiary’s children. If there is no named person remaining in your estate plan, your estate will go to your legal next-of-kin under Kentucky’s rules of intestate succession. This may or may not be the persons you wanted to inherit your estate.
A greater problem may be when the deceased beneficiary’s children inherit. If these children are minors, steps will need to be taken to properly manage the inheritance. This may mean a guardianship, conservatorship, or a trust. Planning in advance can simplify these difficulties.
Divorce. Likewise, when you go through a divorce, your estate plan needs a major revision. A divorce causes your ex-spouse to be treated as if they predeceased you for purposes of distribution of your estate. Post-divorce, you will also need to update your beneficiary designations on non-probate assets. In some states designations of the ex-spouse as a beneficiary on your insurance policies and retirement accounts will be void unless you re-designate that person after the divorce.
Marriage or Remarriage. When you marry, it is important to consider how your estate plan will affect your new spouse and any children you may have from a previous relationship. If you made your will before your marriage and did not update it to include your spouse, he or she will not benefit from your estate unless they go through a process referred to as “electing against the will.” Through this process, your spouse can receive a portion of your estate. In the case of a blended family, planning is especially important in order to make sure all of your loved ones are provided for in the way you desire. Early planning and discussions can help keep family squabbles at bay.
Additions to your assets. If you acquire significant assets, such as a large inheritance or acquire a business, after your estate plan was first drawn up, you may need to use some additional planning methods. For business owners, business succession planning is part of your estate plan!
Changes in health. Changes in your health or the health of your spouse or child may necessitate revising your plan. If you or your spouse will need long-term care, it may be wise to realign ownership of your assets. Additionally, if you have a disabled spouse or child, there are proper ways to make sure they are cared for without disrupting any government benefits to which they are entitled. Further, powers-of-attorney should be created for adults who are ill or disabled if they have not yet created them. This gives your family the ability to care for your loved one without having to seek a guardianship through the courts.
2. Changes in the Law
Changes to the law are made every year, but you may not hear about them. For estate plans drafted before 2012, the American Taxpayer Relief Act of 2012 (ACTRA) drastically changed how you should view estate planning. The act unified the estate gift, and generation-skipping transfer tax exclusions amounts. In 2016, the exempt amount was $5.45 million (or $10.9 for a couple). The exemption amount is adjusted annually for inflation. This is a huge difference from the exemption amounts in previous decades.
Due to the large estate tax exclusions, the focus of estate planning for most clients has shifted from minimizing estate taxes to planning how to increase the step-up in basis for estate beneficiaries. Today’s risk of wealth loss is the imposition of capital gains tax on the sale of assets after death.
Finally, Kentucky enacted the Uniform Trust Code in 2014. These provisions create new ways for Kentucky trusts to be modified and terminated. The provisions further specify the responsibilities and duties of the Trustees. These provisions apply to most trusts currently in existence.
Everyone needs to be aware of life changes and remain flexible in addressing them. An estate plan is not one-size-fits-all. Your attorney is uniquely qualified to tell you what estate planning techniques are right for you, your family, and your specific situation. If you have questions, contact us today.