Once you assess your needs and priorities, meet with your lawyer, draft the appropriate documents, and create the right instruments and allocate assets per your plan, you can breathe easy, right?
Not so fast!
An estate plan is not a “set it and forget it” proposition. You must exercise due diligence over time to ensure that your plan stays on track. In some ways, the process is similar to buying a car. When you shop for a vehicle, you must do a lot of work upfront – research models, road test vehicles, negotiate pricing, sign paperwork, make the down payment, etc. But maintenance is still needed. You still need to gas up regularly, keep air in the tires, change the oil, and replace out of date or damaged parts. At regular intervals, you may even need to trade in the car and get a new one.
Life is full of unpredictable events. Unexpected twists of fate may force you to adjust. For example, during her junior year of college, your daughter might decide to postpone her education and join the Peace Corp for a year, or your business might hit on hard times or become more profitable thanks to an innovation you develop or the acquisition of a competitor.
When and How to Revise and Amend Your Estate Plans
The following events might trigger the need for a reappraisal:
Changes to state and federal laws might allow you to take advantage of new options to achieve your goals… or restrict your options.
Here are two examples to illustrate what types of legal changes can happen and how they can affect people.
In 2014, the U.S. Supreme Court decision ruled that funds in an inherited IRA are not protected when you file for federal bankruptcy.
A Forbes analysis written at the time explained the situation: “in an opinion with far-reaching implications, written by Justice Sonia Sotomayor, the Court found that Heidi Heffron-Clark, who inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later, could not shield the account from her creditors… The Court’s analysis turned on key legal distinctions between inherited IRAs and those that you set up and fund yourself, either through annual contributions or by rolling over assets from a company plan.”
Did your plan include an IRA that your father or mother had left you? If so, this legal decision could render you less protected than you had been.
Another example has to do with the fluctuating state of the federal estate tax – often referred to unflatteringly as a “death tax” – which subjects certain estates to federal taxation after the owner dies. A Wall Street Journal article describes the fluid nature of this debate:
“The federal estate tax is no longer the biggest concern for most affluent people who want to avoid taxes on wealth they leave to heirs.
For much of the past decade, it was. In 2004, for example, the estates of people who died owning assets worth more than $1.5 million—or who made gifts above that limit while alive—were subject to federal tax at top rates approaching 50%, and married couples had to set up trusts to benefit from their full $3 million estate exemption.
In addition, there was extreme uncertainty as the tax bounced around from year to year and even disappeared entirely in 2010—making effective planning exceedingly difficult.
Finally, last year, Congress set the top estate-and-gift-tax rate at 40% and raised the exemption to $5 million per person, adjusted for inflation.”
The moral is: what you don’t know can hurt you. That’s one reason why you want to work with an attorney whose job it is to stay current regarding legal changes like these and to maximize your advantages according to them and minimize your risks.
Shifts in your relationships (or your own internal value system) can affect your asset management strategy.
The sudden and surprising end of a marriage, your child’s wedding, the birth of a grandchild, a spiritual epiphany that leads you to embrace a certain charity, or a decision to quit a job or start a business can radically alter your strategy in unpredictable ways.
For instance: your son gets married to a woman you don’t trust because of the strange and litigious way her first marriage ended, and you want to (delicately) rearrange your plans for leaving him money, so that his new spouse won’t easily be able to access it.
Alternatively, maybe an argument with your business partner over the succession strategy for your company or a dispute with a creditor prompts a desire to examine the protections you have regarding your business interests in a much closer light.
Similarly, maybe you’ve planned to arrange for your son to take over your furniture-resale business once he’s done with business school. But at the graduation party, he reveals he’s heading to New York City to take a shot at being a professional jazz musician. After you get over the shock, you’ll need to reassess the succession plan and possibly create additional protections for the assets you plan to leave your son.
Market shifts, new unanticipated debts, and changes to your portfolio can force you to reconsider your strategy.
- Your stock market portfolio tanks or overperforms, creating a surplus (or deficit) substantial enough to have long term implications. For instance, you might now be in a new tax category, which offers new types of leverage as well as risks.
- An employee makes a mistake handling an order, leading to a customer injury and subsequent lawsuit. Your corporation fails to protect your personal assets, allowing the plaintiff to take some of the $200,000 judgment in his favor from your accounts.
- You make a bold decision to leave your company of 25 years – a choice that affects your income projections and requires you to reassess your retirement plans and possibly sell a family property.
Changes in your health or the health of loved ones or key business associates impacts the plan.
An illness, for instance, can radically challenge your income projections as well as possibly require you to tap into emergency funds to pay medical and surgical bills and rejigger your retirement projections. You may also need to apply for benefits programs through Medicaid, Medicare or the VA.
Alternatively, positive medical developments can change the calculus. For instance, let’s say that your daughter got into a ski accident three years ago. Doctors initially said she would be paralyzed for life. So you planned your finances accordingly to meet her medical needs now. But then an exciting new surgery becomes available, and this surgery restores your daughter to nearly full mobility. You’ve now freed up resources, which you’ll need to reallocate strategically.
Another positive example: after struggling with Type 2 diabetes, a lower carb diet helps you lose weight, get your blood sugar stable and stop taking so much prescription medication. You can now work more hours and concentrate on your business, so your income increases, necessitating a reevaluation of your estate plan.
A trustee or the executor of your estate gets sick or becomes unable to fulfill certain key duties.
For instance, you name your brother as the estate executor and guardian for your children. But then he sustains a traumatic brain injury in a car accident, which means he can no longer fulfill these responsibilities. You will need to find someone else to replace his role.
The emergence of new planning tools or strategies might change your calculus.
A knowledgeable estate planning lawyer can help you keep abreast of such changes and technologies, suggest possible updates and maximize the effectiveness of your estate plan.
Regular Maintenance: Don’t Do It Yourself
Just like you should trust an experienced car mechanic to probe and test your vehicle to determine best practices for keeping it road-ready and safe; so, too, will you benefit from working with a qualified estate planning attorney to manage all the moving parts and alert you to when you need to act and how.
As a general rule of thumb, “tune up” the estate plan annually or in the wake of a major event, like those we discussed above.
For strategic insight into your estate planning, please call the experienced Parvin Law Group, P.C. team at 469.607-4500 to schedule a consultation.