Many people seem to believe that estate planning is a one-time process.  On the contrary, you should review your estate plan annually to determine whether it continues to meet your needs.  Since you last updated your estate plan, there may have been changes to:

  • your personal or financial situation such as a marriage, divorce, inheritance, illness, job loss, or caring for elderly family members;
  • your reliance on digital technology to store, access, or control your assets;
  • the factors that caused you to name certain people as your executors, trustees, guardians, attorneys-in-fact, or beneficiaries; or
  • the federal or state estate and gift tax laws, or other laws affecting financial or medical powers of attorney, wills, trusts, or probate administration.

As a result of such changes, you may find it necessary to modify the designations that you made or utilize different planning strategies to accomplish your goals.  Below are some measures to take as part of an annual estate planning checkup.

1.         Prepare or update your will: 

A.     If you don’t have a will, you probably need one.  This is especially true for parents of minor children, because a will is the only instrument that a parent can use to designate a personal guardian for minor children.

B.     If you have a will, make sure that you are still content with your selection of people or entities appointed to crucial positions such as executor, trustee, and guardian.  These people or entities may no longer be your best option to fill these roles due to personal, financial, or medical problems.

C.     You should also make sure that you still want your property to go to the beneficiaries that you have named and that you are still satisfied with the amount that you have allocated to each one.  For example, people may have been born, married, divorced, died, or developed special needs since you prepared your will.  In addition, you may now wish to include a charitable bequest to an organization with which you have become involved.

D.     If you have a will that was prepared some time ago,you should make sure that your tax-planning strategy continues to be effective in light of changes to the federal and state estate and gift tax laws.  Because the amount of the federal exemption has increased greatly, but is not permanent and is not the same as the state exemption, you may need to implement a strategy that allows your executor greater flexibility to make certain tax decisions after your death.

2.         Review your beneficiary designations for property that will pass outside of your will such as retirement accounts, pension or profit-sharing plans, life insurance policies, and payable-on-death or transferable-on-death accounts.  Make sure that you know whom you have named as your primary and contingent beneficiaries, and that you are aware of the estate and income tax consequences of these decisions.

3.         Make your own end-of-life decisions in a Living Will.  A medical professional is legally obligated to honor your directives.  A living will spares your loved ones from making such agonizing decisions and prevents the possibility of disagreement about your treatment amongst family members.

4.         Designate someone to make medical decisions for you in the event that you are unable to do so.  If you have prepared a Power of Attorney for Health Care prior to the enactment of the Health Insurance Portability and Accountability Act (“HIPAA”), you should execute a new one that specifically allows medical providers to share your confidential medical information with your health care agent.

5.         Prepare a Durable Power of Attorney for Property to enable someone else to handle your financial affairs if you become incapacitated.  If your Power of Attorney for Property was prepared before November 2010, you should execute a new one to take advantage of new statutory protections and increased enforceability.  You should also consider incorporating language authorizing assets to your digital assets and accounts.

6.         Determine whether you should implement a gifting strategy to reduce your assets while you are living.  Because you are able to give up to $15,000 per year to an unlimited number of recipients without any gift tax being imposed, gifting can be a very effective way to reduce your potential estate tax liability over time.  In addition, you may gift up to $10.2 million in excess of the annual gift exemption amount without incurring any gift taxes.

7.         Consider your long-term care options and begin planning how to finance the care that you desire.  The type of care that you want may dictate which financing approach is best for you.  Whether you intend to pay for the potential cost of care from your savings, through long-term care insurance, or by relying on Medicaid, you should plan accordingly well in advance to guarantee that your needs will be met.

8.         Determine whether you own enough life insurance.  You should analyze what it would cost to replace your income and/or the services that you provide to your family.  In addition, you should consider any tax consequences or other expenses of your estate, and make sure that your estate and your beneficiaries have adequate resources that will be readily available to cover these expenses.

9.         Identify what you own and how to access it.  Not only will it ease the burden on your executor, but it will ensure that your beneficiaries actually receive all of the property that you own at your death.  This involves preparing both a traditional financial inventory and an inventory of your digital assets and accounts (including passwords).

10.       Consider your legacy.  In addition to transferring assets at death, most people hope leave a legacy that conveys their values to the next generation.  Your trusted advisors can help you to incorporate your values into your estate plan.