Around the end of each year I like to take an inventory of myself, what I did in the past year and what changed over that time. There have been new additions to my family; I have grown closer to some friends and more distant with others; we’ve moved to a new house; and in general things have changed considerably. With all of the change, it’s a perfect time to update my estate plan to reflect these and other changes that have happened since I executed my estate planning documents nearly eight years ago.
I need to update my documents and you probably do too; or you need to create an estate plan if you don’t have one already. Some questions that you should ask yourself in determining whether you need to update your estate planning documents are below.
1. Do you have an existing estate plan?
If your answer is yes, then I will direct you to question number 2 estate planning. If you answer, no, then please read on.
I sometimes have people tell me that they have a will but it just hasn’t been signed. My answer is short: “Then you don’t have a will.” In Oregon, a will is only valid if you sign it and it’s properly witnessed.
I also ask them if they have a durable power of attorney and advance health care directive. Either a will or trust will form the backbone of your estate plan, but you should also have a durable power of attorney for finances and advance health care directive to complete your estate plan.
2. Has the size of your estate changed?
If the size of your estate has increased then you may need a new estate plan to address the increase for estate tax reasons or from a financial planning standpoint. Even a decrease in your estate may necessitate a change since tax planning in your previous estate planning documents may no longer be necessary or adequate.
3. Have you divorced or married?
Once finalized a divorce automatically revokes your will. If you didn’t update your existing estate plan after the divorce then you need to do so as soon as possible. If your will is revoked then your estate may pass through intestate succession unless you execute a new will or trust.
Not only is your will revoked but most payable on death designations naming your ex-spouse as a beneficiary will be automatically revoked too. However, you need to change those designations so that a bank or other financial institution doesn’t mistakenly make a payment to your ex-spouse.
In Oregon, like a divorce, marriage revokes any will entered into prior to the marriage (unless the will states that it was made in contemplation of marriage). However, the beneficiary designations on most payable on death accounts (bank accounts, brokerage accounts, etc.) and retirement accounts remain unchanged. For example, you may name your sister as the beneficiary of your IRA, get married, and forget to change your spouse to the primary beneficiary. You pass away 10 years later, still happily married. Your sister gets your IRA, not your spouse – the one you and your spouse have been living on.
Executing a new estate plan following a divorce or marriage is necessary to avoid this result.
4. Have you moved to a new state or country?
For the most part estate planning documents executed in Oregon are valid in the other 49 states. However, you may need to update your existing documents to reflect your new state’s laws. Oftentimes you will need to execute a new durable power of attorney or health care directive to comply with your new state’s laws. Although it may not be necessary, new estate planning documents may make it easier to deal with financial institutions and medical providers in your new state.
5. Have any of your trustees, personal representatives or other fiduciaries moved, died, become ill, grown distant, or otherwise become unable to serve as a fiduciary?
As beneficiaries change, so do your fiduciaries – such as personal representative, trustee, attorney-in-fact and health care agent. With younger couples, oftentimes they name their parents as trustees of a trust set up for the couple’s minor children. The children grow up and become financially responsible. The couple’s parents get older and pass away or become unable to manage finances.
Co-fiduciaries get divorced (think your son and daughter in law) or have a falling out (siblings named as co-trustees) such that they can no longer serve together. Friends named as trustee or personal representative grow distant and you no longer talk or see them. Banks change hands and names such that the small, intimate local bank, is now owned by one of the mammoth national banks.
As these changes happen, the fiduciary designations in your estate plan need to change too. The update can be relatively simple.
6. Have you funded your trust completely?
Many people sign their trust, put the originals in their safe deposit box and then move on. They never think about the trust again. They buy and sell property in their own names, never transferring the property to the trust or buying new property under the trust’s name. Many clients will refinance their home and to do so the bank requires the couple to take their property out of their trust and refinance it in their names as husband and wife. Once the refinance is complete, they don’t put the property back into their trust.
One of the main reasons to use a trust is to avoid probate. If all of your property is not transferred to your trust or owned by your trust then probate may be required. Probate is an expensive and timely process that is oftentimes unnecessary, assuming your trust is fully funded.
7. Does your existing plan address your incapacity?
Some people have a will but do not have a durable power of attorney for finances and advance health care directive. Both of these documents are essential to avoid unnecessary and expensive guardianship and conservatorship proceedings during your lifetime. Many people that use do-it-yourself wills run into this problem.
The fact of the matter is that guardianship and conservatorship proceedings diminish your assets faster than a probate proceeding will. Yet people frequently ignore these documents in planning or fail to update the documents to address changes during their lifetimes.
One of the more frustrating parts of my practice occurs when a person has a valid durable power of attorney but the appointed attorney-in-fact has passed away or is unable to serve as attorney-in-fact and a successor is not named in the document. The document is essentially useless and you’ll need court involvement if you become disabled.
8. Does your existing plan distribute your property: (1) to whom you want; (2) when you want them to receive it; and, (3) in the manner you want them to receive it?
If you cannot answer these three questions affirmatively then you probably need to update your estate planning documents.
Family dynamics change rapidly. You may have had an excellent relationship with your son at the time you executed your will in 1990 but since that time your relationship has deteriorated so much that you haven’t spoken to him in 10 years. Do you still want your son to receive all of your estate and if so do you want his share to be held in trust for his benefit during his lifetime with the remainder going directly to his children.
Has a beneficiary become disabled since you last executed your will or trust? Has a beneficiary developed a gambling habit or spending habits that you may disagree with?
