Even though you have all your important documents in place, life changes — and so may your plans. Here's when to take another look.
You have an estate plan that ensures your loved ones will be protected and your wishes will be carried out if you die or become incapacitated. You've written a will, named guardians for young children, granted a friend or family member your power of attorney and designated someone to oversee your medical care.
Estate planning, however, is not a set-it-and-forget-it event. As life progresses and your finances, personal relationships and circumstances shift, your plan needs to evolve, too. "Your needs, goals and wishes may also change," says Jason Albano, managing director, wealth strategies advisor, Bank of America. "The biggest reason to update your plan is to make sure it still reflects your beliefs."
Even if nothing has changed, Albano notes, you should review your estate plan every three to five years. But certain events and situations should prompt a review and updates sooner.
Major life changes
"Marriage, divorce, the birth or adoption of a child or grandchild, and death of a loved one — those are all triggering events that should at least lead you to dust off those estate planning documents and give them a read," Albano says. When any of these events happen, here are some key things to watch for and consider.
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5 important life events that could change your estate plans
| Event |
What to consider |
Don't overlook this |
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Marriage
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This happy event can mean far-reaching changes to your will, power of attorney, healthcare proxy, beneficiaries may need updating after a marriage and life insurance. |
With a second marriage, you may want to consider how your estate plan provides for children from an earlier marriage, in addition to your new spouse. |
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Divorce
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As you revise your will and the names on your power of attorney and healthcare directive, also check who is listed as a beneficiary on your retirement and other financial accounts. |
Beneficiary designations may need updating after a divorce take precedence over a will, so failing to update those could mean that an ex-spouse inherits. |
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A new child
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For parents, a crucial step is naming a guardian in your will. You may also want to update your beneficiary designations after the birth of a new child and increase your life insurance when you welcome a new child. |
If you're a grandparent, you may want to consider taking advantage of the annual gift tax exclusion to help support a grandchild or updating your own beneficiaries. |
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Death of a loved one
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If your primary beneficiary predeceases you, you may want to update the beneficiaries after the death of a loved one of your will, trust and financial accounts, including naming new and contingent beneficiaries. |
You may also want to update who is given your power of attorney and named as healthcare proxy. |
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Changes to your health
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If you are diagnosed with a serious illness, it's essential to update your healthcare proxy to include specific instructions about your medical care, process for making decisions, and end-of-life directives. |
Consider granting power of attorney to a specialized agent (trusted friend, relative or professional) who can make investment decisions for you or manage your business. |
Your wealth increases significantly
Your finances can change for the better for many reasons:
an inheritance, a promotion or new job that leads to a pay bump, selling property or the sale of a business you've made a success through years of hard work. Consider the following updates you may want to make to your estate plan as a result.
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Greater wealth may prompt you to add beneficiaries to your will, such as charitable organizations or a wider circle of friends or family.
With more financial resources, you may want to
establish a trust so you can ease the settlement of your estate, have more control over the distribution of your assets, reduce potential estate taxes or enable more tax-efficient charitable giving.
Consider updating the executor of your will or adding a second one if distributing a larger and more complex estate will require special skills. The same goes with the trustees of any trusts. And you might think about working with a financial advisor if you don't already have one.
Four surprising reasons to revisit your plan
It's easy to see why major life events and changing financial circumstances should initiate a review of your estate plan. But there are also less obvious yet equally important reasons to consider updates.
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"I always recommend updating your documents so they're drafted by someone practicing in the state you now reside in," Albano says. "There are different execution requirements, so if you have a healthcare power of attorney, you want it to be one that doctors in your state are familiar with." Plus, your new home state may tax estates differently (or not at all).
Changes to federal and state laws could necessitate updates. For example, the amount of money you can gift annually and over your lifetime without triggering gift-tax reporting typically changes every year, which can influence how much you transfer to your loved ones now.
Aside from marriage, divorce and death, less obvious relationship shifts may trigger a review of your estate plan. For example, a change in your relationship with a sibling or friend could mean you want a new healthcare proxy. If the people named as guardians of your children have moved, it might not be practical for them to step in if something happens to you.
As your children mature, you may want to assign them more responsibility for your affairs. That could mean naming them as an executor of your will, naming them as a trustee of your trust, or adding them to your power of attorney and healthcare proxy.
Remember this: One big reason to have an estate plan in place is to make life less challenging for your loved ones and heirs should something happen to you. It's sort of like a final gift you can give them. So as your life evolves, kids grow up and circumstances shift, so too might the ways in which you seek to
make things easier for your loved ones.