If you have an estate plan you have taken an important first step in providing for your family. However, and estate plan is not one and.done. Your family’s circumstances and tax laws will change in your plan needs to incorporate the changes. This is especially true in these uncertain times of Covid-19.
You need to periodically review your plan, there are certain events that should provoke you to look at it more closely. Here are some events that should cause you to review your estate plan.
- Changes in family situation
If you have children, if your children have grown up, or you have gotten married or divorced, you need to update your plan. This includes not only your will or your trust, but you also need to review your beneficiary designations for life insurance and retirement plans.
If you have children, it is especially important you name somebody who would be their guardian if you were not there to take care of them. If you do not name a guardian in your will them the court would name somebody. You may not like their choice.
- Changes to beneficiaries
You may decide that you do not want to leave assets to the same people or in the same percentages as you did previously. You therefore need to change your will or your trust and retirement plan designations to make sure it goes to people that you want in the percentages that you want.
- Changes in tax law (including income tax)
Illinois has an estate tax with an exemption of $4 million. The federal estate tax carries an exemption currently of $11.5 million. Congress changes the federal rules from time to time and you must change also to avoid overpaying tax. If the Democrats win in November, they have proposed reducing the federal exemption to $3.5 million per person.
The SECURE act is a new law that became effective January 1, 2020. Under this new law, your children can only take out an inherited IRA over ten years and not over their life expectancy. Your beneficiaries will pay significantly more income tax without proper planning. There are steps you can take to reduce the damage.
- Changes in trustees, executors, or agents
You have named family or friends to serve in various capacities including executor, trustee, or agent on a property power of attorney. As years pass your decisions may change either because people move away or have become too ill or old to take the job. You should update these positions if someone you named has died or is otherwise unable to do the job. If you do not update them then winding up your estate after your death could become a nightmare for your family.
- Planning for the future of your business
If you own a business or plan to start one, you need to develop not only a plan for the future but what would happen to it after you are gone. Make sure that you name people who are both qualified and interested in taking over. Only 30% of family businesses survive the second generation because family is either not interested or is not well trained.
We have listed just a few of the most common reasons why you need to review your estate plan. If you do not review it periodically you can leave your family with less money because of additional taxes, administration expenses or assets going to people you did not intend to get it. The most important reason to update is to provide for your family’s financial future.
