It's Not Set-It-and-Forget-It: When to Update an Estate Plan

As we all know, life happens. There is really nothing we can do about it. However, some of the most common life events can have a dramatic effect on your estate plan meaning you will occasionally need to update your estate plan. Because if you think your estate plan is like a slow cooker and you can set it and forget it, you and your loved ones may be in for a stomach-turning surprise when it is time to put your plan into action. Let us take a look at some common life changes and the impact they may have on your already established estate plan.

Update an Estate Plan at the Birth of a Child

It is common for parents to have their estate plan prepared after the birth of their first child. However, depending on what provisions are in the first iteration, a second child might have difficulty getting their share without court involvement if the clients do not revise their plan after the birth of a subsequent child.

Example: Ten years ago, Tim and Leslie had a daughter named Tabitha, which prompted them to have a revocable living trust prepared, outlining how the trust’s money and property were to be managed for Tabitha’s benefit. Five years later, Tim and Leslie had a second daughter, Tina. Months after Tina’s birth, Tim and Leslie both passed away in a plane crash. However, Tim and Leslie had not revisited their estate plan after Tina’s birth, so she is not mentioned anywhere in their trust. For Tina to receive any benefit from her parent’s money and property, someone will need to petition the probate court to sort out the situation. This process can be time-consuming, costly, and public, and the exact opposite of the outcome Tim and Leslie wanted when they created a revocable living trust to begin with.

Update at the Birth of a Grandchild

Many grandparents love spending time with and supporting their grandchildren in any way they can. However, depending on the family structure, a grandchild who has been left out of an estate plan may have no recourse and may miss out on the opportunities the grandparents may otherwise have intended their grandchildren to have.

Example: Ted and Gladys had two children, John and Adam. In 2020, Ted and Gladys met with their estate planning attorney to create an estate plan. Because they strongly believed in the value of higher education, they created subtrusts for their two grandchildren, John’s daughters, Mary and Ellen, to help offset the cost of their future tuition. In 2021, Adam welcomed a son, George. Unfortunately, Ted and Gladys passed away shortly thereafter. Although updating their trust was on their to-do list, they never got around to it. Therefore, when Ted and Gladys passed, Mary and Ellen were the only grandchildren to receive money for their education, leaving George to find alternate avenues for funding his education.

Update an Estate Plan at the Death of a Family Member

A number of people are involved in creating a will or trust. There are those who are creating the estate planning documents (will maker or trust maker, respectively), those who receive a benefit from the estate planning document (beneficiaries), and those who are in charge of carrying out the document’s instructions (personal representative, executor, or successor trustee). Aside from the will or trust maker, the death of any of these individuals can greatly impact the estate plan. A beneficiary’s death may mean that others receive a larger share or that the deceased beneficiary’s descendants receive that share. Reviewing your estate plan to make sure that your wishes will still be carried out is important, even if your first-named beneficiary is no longer living.

Example: Stacy, a single woman, created a will, leaving her modest amount of money and property to her mother, her only living parent. Ten years later, both Stacy and her mother passed away while bungee jumping in Costa Rica. Because Stacy named no contingent beneficiary in her estate plan, the probate judge must look to the state inheritance law, which gives everything to her only living sibling, her estranged brother, Robert, whom she has not seen for fifteen years.

In addition, it is crucial that you select backups for your personal representative, executor, or successor trustee in case the first person you named passes away (even if it is before you). If you named no alternate, or not enough alternates, then depending on your estate plan’s terms, your loved ones may be able to pick the successor person or a judge may have to look to state law to determine whom to appoint as the new person in charge. For families who are prone to conflict, this type of situation could spell disaster.

Example: Roger named his wife, Janice, as the successor trustee of his revocable living trust. Under the wise guidance of his estate planning attorney, Roger named his sister, Joan; his son, Jason; and his best friend, Charles, as additional successor trustees. Six years later, Roger, Janice, and Joan passed away while visiting Roger’s mother. Because Roger had named backup successor trustees, his trust’s administration continued smoothly under Jason’s direction, preserving Roger and Janice’s nest egg and keeping nosy relatives and neighbors from learning their financial details.

Update When Purchasing a New Home

Purchasing a new home can dramatically impact a trust-based estate plan. Typically, for this type of plan to work as intended, either all accounts and property need to be owned by the trust or the trust needs to be named as the beneficiary. Usually, when you create the trust, you prepare a deed transferring your home to it, making it easy to ensure that the trust owns your home (if your estate planning attorney recommends that strategy). However, if you decide years later to buy a new or second home, you need to remember to fund your new real estate into your trust to avoid probate. When you purchase real estate, most title companies will assume that you are doing so as an individual or, if you are married, as a married couple. If you want the home to be purchased in the trust’s name, you will need to notify the title company or follow up with your estate planning attorney after the transaction has closed to transfer the new property into the trust.

If you do not transfer the property to your trust, then upon your death, it will go either to the surviving owner (if owned as joint tenancy with rights of survivorship or tenancy by the entirety), or through probate if you owned it individually or as a tenant-in-common.

Example: Roy had a revocable living trust that he established in 2000. When he signed the trust, he also signed a deed transferring his home to the trust. In 2018, he purchased a vacation home on the Gulf of Mexico shore. However, he forgot his estate planning attorney’s wise advice and had the vacation home deeded to himself as an individual. In 2020, Roy passed away as a resident of North Dakota. Because Roy’s vacation property is located in a state other than the one in which he resided at the time of his death, Roy’s loved ones must open two probate proceedings to transfer the property (one in North Dakota and one in the state where the property is located). This process will probably be very time-consuming and expensive for Roy’s family, even though he had a revocable living trust.

Update an Estate Plan upon Marriage

Marriage is an exciting and sometimes complicated process. You may have your own money and property and, over the coming years, you will probably accumulate money and property jointly with your spouse. Keeping straight which property is separate and which is joint, outlining your wishes for what you want to leave to your spouse, and deciding what decision-making authority you want your spouse to have in the event you are unable to make your own decisions are all crucial elements that an estate plan should cover. If you do not update your estate plan after your marriage, a court may have to be involved for your spouse to be able to make decisions for you and receive what you want them to have.

Example: In 1999, Emmet met with an estate planning attorney to complete his estate plan, including a last will and testament, a financial power of attorney, and a medical power of attorney. Being single, Emmet named his sister Bettie as his trusted decision maker under each of these documents. In 2001, Emmet married Lucy. On their honeymoon in Hawaii, Emmet fell off a balcony and became comatose. Lucy contacted Emmet’s medical insurance to work out the details for his treatment but was denied access to the information because she was not listed as Emmet’s agent under a financial or medical power of attorney. Although Emmet would have wanted Lucy to have the authority to make his financial and medical decisions, she has little power to do anything, without involving a court, becausehe never specifically gave her that authority in valid legal documents.

Divorce

It is natural for married couples to name each other as their trusted decision makers in their estate plans (e.g., as executor, personal representative, trustee, and agent under financial and medical powers of attorney). It is also probable that you named your spouse as a beneficiary of some of your money and property. However, if you and your spouse divorce, chances are your wishes will change. State law varies as to the effect of a divorce on a person’s estate planning. To avoid complicating matters, it is best to update your documents so there is no question as to your intent. Because of the varying treatment under the law, it is important that you meet with an estate planning attorney after your divorce has been finalized to replace your trusted decision makers and name new beneficiaries. The last thing you want is to give your ex-spouse a reason to be involved in your estate plan, even if they will receive nothing.

McCreary Law Office applauds you for having taken the crucial step of having an intentional estate plan prepared instead of relying on the state’s default rules. And if you planned with McCreary Law Office, contingencies are taken into consideration. However, estate planning is not just a once in a lifetime event. Your plan is a set of living, breathing documents that can be impacted by many common life events. If you or your loved ones have experienced any of the above events recently (or since you last updated your estate plan), now is the time to call the office to schedule a review of your documents to see if you need to update your estate plan. Do not wait until it is too late. The outcome may lead to disaster for those you care about.