Although it’s not the most exciting thing on the financial to-do list, it’s always a good idea to revisit your estate plan from time to time. If you have experienced a major life transition recently, such as moving to a different state, or if it has been over five years since you last updated anything, you will want to ensure that your current plan still accurately reflects your wishes.
Conducting a review of your estate plan can give you peace of mind that you, your family, and your assets will be protected if the unexpected occurs.
What is an Estate Plan?
Before we dive into conducting a review of your estate plan, it’s probably best to take a step back and understand what an estate plan is.
An estate plan is essentially a set of instructions that expresses your wishes for asset distribution and medical care after your passing or in the event you become incapacitated.
Your estate plan empowers you to:
- Craft a holistic plan ensuring your loved ones are protected, informed and able to carry on the plan
- Decide and communicate how you want to distribute your assets upon your death
- Structure ownership of your assets to your liking while you are alive and ensure they will be distributed according to your wishes
- Communicate your wishes about the type of medical care you want if you are unable to make decisions for yourself
- Appoint financial and medical advocates you trust if you are unable to make decisions for yourself
NOTE: The NewRetirement Planner allows you to keep track of what estate planning documents you have already created or may still need to create under My Plan > Estate Planning.
Tracking the Value of Your Estate
As part of the estate planning process, you will want to know what you are going to have at the end of your life. The NewRetirement Planner can help you visualize this projection. The tool shows you your net worth and estate over time. You may want to maintain different scenarios to help you assess your projected estate.
With an accurate baseline projection, you can begin running scenarios to determine how certain life events will change the outcome of your estate. For example, what happens to your estate projections if you:
- Require long term care
- Live 10 years longer than expected
- Deploy gifting strategies to share wealth while you are still alive
- Etc…
And, as we all know, life is full of contingencies. For this reason, financial planning, including estate planning, is an ongoing process and not a one-time event.
As the years go by, you’ll want to continue to update your NewRetirement Plan with updated account balances, income, expenses and life changes. In the Planner, you have the ability to monitor your estate value (your projected net worth at your longevity age) as you continue to adjust your plan on an ongoing basis.
A Review of the Most Common Documents as Part of a Comprehensive Estate Plan
There are many types of documents that make up an estate plan.
Most of these will be applicable to your situation (e.g. a will or health care power of attorney) and some may not apply (e.g. a revocable or irrevocable trust). Either way, as you review your estate plan, it’s important to understand how each of these documents play a role and what to consider when you are revisiting your plan.
Last Will and Testament
A last will and testament is foundational to a well-thought-out estate plan.
Through your will, you not only spell out how you want your assets distributed but you also appoint an executor to oversee the fulfillment of your wishes. This ensures that your property is distributed in accordance with your intentions.
When revisiting your will, you should think through the following:
- Executor: Is the designated person for overseeing your estate after your passing still in line with your intentions and capable of fulfilling their responsibilities?
- Co-Executors: If you named two people as executors, like a spouse and a sibling for example, does it still make sense or will it complicate things further?
- Successor Executor: Have you named a successor executor in case something happens to your first-choice person?
- Minor Children: If there are minor children in the picture, does your will include provisions to control the timing and amount of access to funds?
- Guardians: If you named guardians for minor children, are they still appropriate? Are the guardians physically capable? Would they impart similar values?
NOTE: Assets passing through a will undergo a legal process known as probate, where the court validates your will and initiates the estate distribution process.
Revocable or Living Trust
A trust may be part of your estate plan as they have the potential to allow greater control of when and how your heirs inherit your property. It is important to note that a trust does not eliminate the need for a will, however.
A revocable trust, or living trust, gives you the flexibility to modify or update the trust at any time as long as you are alive and mentally sound. When you create a living trust, assets can be placed into the trust, and at the time of your death, the trustee (the person or persons responsible for managing the money or assets) distributes the assets to your heirs in accordance with the trust document. While you’re alive, this type of trust allows you to retain control over your estate and assets.
As you revisit your revocable trust document, assuming its part of your estate plan, think through the following:
- Are your current assets titled properly?
- Are your beneficiary designations appropriate? (More on this later!)
- Are the assets divided and distributed how you intend upon your death?
- Are the successor trustees still as you intend or do you have someone else in mind now?
Irrevocable Trust
With an irrevocable trust, you transfer ownership of assets to the trust, relinquishing control, and you generally cannot make changes once it’s established.
When you place assets into an irrevocable trust, they are not added to the value of an estate. Unlike revocable trusts, irrevocable trusts are excellent asset protection tools because the asset no longer belongs to you so your creditors cannot seize it.
Irrevocable trusts tend to be more complex and less common than revocable trusts in estate planning. However, if you do have this type of trust, you’ll want to ensure your actions are consistent with the terms of your trust and that income tax returns are properly filed for any irrevocable trusts.
NOTE: A trust isn’t a necessity to every estate plan out there. Speak with an estate planning attorney to determine if a trust is essential to your estate plan and which type makes the most sense for your specific situation.
General (Financial) Power of Attorney
Estate planning doesn’t only focus on what happens at your death. There are also decisions to make when you are alive but no longer able to make decisions for yourself, for reasons such as serious illness or incapacity. This is where powers of attorney come into play.
A general power of attorney grants someone broad authority, allowing them to make various financial decisions on your behalf if you’re temporarily unable to do so. It does, however, become invalid if you become incapacitated or pass away.
You’ll want to confirm the terms of your general power of attorney, to determine if any of the following are applicable:
- Limited: If your power of attorney is limited, you are giving someone the right to make only certain financial decisions for you, like selling a property, for example
- Durable: A durable power of attorney, which can be either general or limited, continues beyond your incapacity
- Springing: When a power of attorney is springing, it is contingent upon the occurrence of a specific factor that you designate, such as mental incapacity, for instance
Health Care (Medical) Power of Attorney and Living Will
Whereas a general power of attorney is dealing with financial matters, a health care or medical power of attorney designates someone to make medical decisions on your behalf if you become unable to do so.
In both cases, you are designating an agent, to ensure your wishes are followed. When reviewing your power of attorney agents, consider the following:
- Is this someone you can trust? An agent has a great deal of responsibility
- Are your agents local or readily available to best serve your needs?
- If naming multiple agents, can your agents act individually or do they need to act jointly?
- Have you named successor agents and are they good back-ups for your primary agents?
It’s not unusual to combine a health care power of attorney with a living will, or an advance health care directive.
Through a living will, you’ll want to ensure your wishes regarding your end-of-life treatment options are expressed clearly. Your ideas or thoughts on palliative care, life-prolonging medical procedures (think ventilators or feeding tubes) and other end-of-life decisions may have changed over time.
Don’t Forget to Designate Those Beneficiaries!
A beneficiary designation is the act of specifying the person(s) who will receive an asset when the account owner dies. Upon the account owner’s passing, the designated beneficiary inherits the assets.
Common accounts that pass by beneficiary designation include:
- Retirement accounts, like 401(k)s, 403(b)s, IRAs, and similar accounts
- Life insurance policies
- Annuities
Ensure that you have beneficiary designations on all applicable accounts and policies. It’s common to overlook accounts you opened 15 years ago or an old 401(k) you didn’t know you still had.
There are two main beneficiary designations:
- Primary: The primary beneficiary is the individual or entity that receives assets first. In the event of your death, the primary beneficiary is the first to inherit the assets.
- Contingent: The contingent beneficiary is the individual or entity next in line to receive assets if no primary beneficiaries are still alive.
A beneficiary designation overrides a distribution set forth in a will, so it’s important to make sure your beneficiaries are coordinated with your estate plan. If you are revising your estate planning documents without updating your beneficiary designations on these types of accounts, distribution upon your death may not align with your intentions.
Digital Assets Should Not Be Overlooked
In our technologically advanced world, it’s essential to factor in your digital assets when revisiting your estate plan. These assets can be addressed in either a will or a trust.
A digital asset is an electronic record that may be valuable to your heirs, such as:
- Online banking accounts
- Social media accounts
- Email accounts
- Anything stored on a smartphone or tablet
- Websites
- Electronic medical records
- Cloud storage
- And more!
It would be super beneficial to have a list of all your digital assets along with any passwords needed to access that information. Your heirs should know where to find your records.
An estate planning attorney should ensure your estate plan gives your executor or trustee the authority to access your digital assets.
Common Estate Planning Mistakes
Given the complexity of putting together an estate plan, it’s not unusual for mistakes to occur.
While reviewing your estate plan, be aware of the following mistakes:
- Unknown location of your original documents: Confirm that your documents are kept in a safe but accessible place, known to your family and/or fiduciaries
- Lack of liquidity: Ensure heirs have enough liquidity to cover costs such as final expenses or estate taxes without having to sell something (Thankfully, you can add one-time expenses in the NewRetirement Planner!)
- Choosing the wrong executor: Selecting an individual who is uninterested or lacks the skills to understand your particular issues could be a problem
- Neglecting to designate contingent beneficiaries: Without a contingent beneficiary on accounts like a 401(k) or an IRA, if your primary beneficiary passes, your assets would be considered a probate asset and now part of your gross estate
- Overlooking final arrangements: Do you want a burial or cremation? Do you have something specific in mind for funeral arrangements or the burial ceremony? A well-structured final arrangement plan allows your family and friends to organize a meaningful farewell to express their goodbyes
- One and done estate plan: Keep your estate plan current! Revisiting your plan every 3 to 5 years, or when a major live event occurs like a marriage, death, or move, ensures your reflecting all of your life changes as they come
A Successful Retirement Plan Should Include a Comprehensive Estate Plan
Your estate is effectively the end result of your retirement plan. However, as you have seen, there is a lot of paperwork to put into place to ensure that your wishes are fulfilled. It’s essential to keep both your retirement and your estate plans fully up to date to enable the life you want to live and that your wishes are after you are gone.
