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January 25, 2024
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.
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:
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.
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:
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.
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.
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:
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.
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:
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.
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:
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:
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.
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:
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:
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.
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:
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.
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:
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.
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