The question is asked frequently, but not frequently enough: when should I have my estate plan reviewed? I don’t think there is a one-size-fits-all answer to the question. There are, however, a number of indicators, some of which are less obvious than others.
Having an out-of date estate plan can be just as bad as not having one at all, even if you aren’t J. Howard Marshall. You remember him: married Anna Nicole Smith in 1994 when he was 89 years old (and she was 26), died in 1995, left a fortune which his son and Anna Nicole spent literally the rest of their lives fighting over. I don’t know what sort of estate plan Marshall had (except that it excluded Anna Nicole), and there probably would have been a fight anyway, but if you want to minimize the possibility of people fighting over your estate for the rest of their lives, having it reviewed and updated at the appropriate times will certainly help.
One of the biggest indicators that it’s time for a review is, of course, if you have had a significant change in family circumstances: a birth, a death, a marriage, a divorce. Yes there are laws that prevent some of the bad things that could happen if you failed to get your estate plan updated after such an event, such as, for example, your former spouse inheriting your entire estate under a will that you signed before the divorce. There are many other unintended consequences, however, that are either inadequately covered, or not covered at all, by those laws.
Another fairly obvious reason to have your estate plan reviewed is if you have relocated to another state since your estate plan was prepared. Although estate planning documents will usually work in any state as long as they were valid in the state where they were executed, there are situations where they may not work as they were intended. Differences in property law from state to state can create unintended consequences even if there is nothing wrong with the documents themselves.
A more frequently overlooked indicator that it is time to have your estate plan reviewed is simply the passage of time. Estate plan documents can be outdated even if your circumstances have not changed. A prime example of the ravages of time on your estate plan documents is your durable power of attorney. Frequently a bank or other financial institution will refuse to honor a power of attorney that was signed more than about two years ago. Another problem that can arise with old estate plan documents is that changes in the law since a document was executed, while they may not render the document invalid, can result in the document not functioning as it was intended.
A significant change in your financial circumstances is another, often overlooked, reason to have your estate plan reviewed. If you have acquired real estate, set up a new bank, brokerage, or mutual fund account, purchased life insurance, or acquired any other significant asset, do you know what will happen to it under your current estate plan? The answer may not be as obvious as you think, depending on whether you own it jointly with someone else, designated someone else (or your estate) as a beneficiary, or own it through your business.
So, is it time to have your estate plan reviewed? As I said at the outset, I don’t think there is a single right answer to the question, but in general, if your estate plan documents were signed more than five years ago, chances are that there has been some change in your circumstances that warrants a review.
ON THE SUBJECT OF TAX REFORM…
Whether or not you think individuals and companies should pay more federal income taxes, I don’t think there’s much argument with the proposition that the federal tax system is too complex. I’m not going to tell you who made the statement quoted below, because it deserves to be read without the reader’s perception being influenced by the identity of the speaker. I got it from a May 21 posting at washingtonpost.com/blogs/wonkblog/:
I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories.
Tell me one of these politicians up here that doesn’t minimize their taxes. Tell me a chief financial officer that you would hire if he didn’t try to minimize your taxes legally. Tell me what Apple has done that is illegal.
I am offended by a government that uses the IRS to bully groups such as the Tea Party but I am also offended by a government that convenes a hearing to bully one of American’s success stories.
I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.
I frankly think the Committee should apologize to Apple. I frankly think Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn’t compete with the rest of the world.
This committee will admit: Apple has not broken any laws. Yet, they are forced into a show trial at the whims of politicians, when in fact, Congress should be on trial for chasing the profits of great American companies overseas. You haul before this committee one of America’s greatest success stories and you want applause?
The instruction book for the 2012 individual income tax form was 108 pages long, not including the instructions for the schedules to that form. That’s ten pages longer than the 2011 instruction book. Imagine what it’s like to prepare the income tax forms for Apple, which paid $6 billion in income tax in 2012. Does it really have to be that way?
QUOTE OF THE MONTH
Almost everything–all external expectations, all pride, all fear of embarrassment or failure–these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.
∞ Steve Jobs, US computer engineer & industrialist (1955 – 2011)