Has Your Client Outgrown Their Estate Plan?

As estate planning attorneys, we work hard to set up estate plans that fit a client’s needs and ensure that everything works together for the client and their loved ones. Estate plans remain effective as long as they accurately reflect a client’s circumstances and current state and federal tax law. However, circumstances often change. So, too, should your client’s estate plan.

Outdated plans not only jeopardize your client’s wishes and legacy vision but may also negatively impact their loved ones and themselves. An outdated estate plan can result in unintended income tax or estate tax consequences, the disqualification of a special needs beneficiary from benefits, potentially greater fees and costs associated with settling an estate, forcing loved ones to resort to court intervention, and disinheriting desired beneficiaries or benefitting unintended beneficiaries.

Nobody wants to put their clients at risk due to changing laws and regulations. To avoid such risks and guide your client and their family toward a favorable outcome, you should sit down with your client and review their estate plan periodically, such as once a year.

Changes in the Law

Trust and estate laws are constantly evolving, and new legislation could impact your client’s plans. One example is the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which changed how beneficiaries could inherit retirement accounts. Another example is the federal estate tax exemption, which is scheduled to continue increasing until the end of 2025, when it will sunset and revert to a much smaller exemption level.

Changes In Client’s Wealth

Depending on when your client originally created their estate plan, they may have chosen to create a last will and testament (otherwise known as a will) because they were young, single, and did not have much money and property. They saw the importance of setting their wishes out in a legally enforceable way, but they did not need any extensive planning. Fast forward ten or more years, and your client’s lives could be vastly different. If they have accumulated more money and property, had children, or have gotten married or divorced, they may now need to consider some additional planning to ensure that their loved ones are protected. This may mean that they are ready to have a revocable living trust as their foundational estate planning document instead of a will. With more money or minor children to protect, a trust will allow for more privacy and efficiency in handling the client’s affairs during their life and at their death.

Your client’s net worth may increase to a point where it warrants tax planning that was not necessary originally. If your clients have an existing life insurance policy and other accounts and property that have gone up in value, a tool such as an irrevocable life insurance trust may be beneficial now to remove the value of the life insurance policy from your client’s overall net worth to save on potential estate tax liability at the client’s death. It is important to remember that in order for this strategy to work, it is prudent to work with an experienced estate planning attorney to ensure that the trust and transfer are executed properly and adhere to applicable laws. Additionally, if your client’s retirement account has grown significantly over the years, it may be time to create a standalone retirement trust to be the primary or contingent beneficiary of the account. This could make the retirement account management easier at the client’s death since it will be the only account that the trustee of that trust will have to manage.

Clients may also have acquired new assets—particularly digital assets. As of 2022, 16 percent of Americans have purchased digital assets. Digital assets may take many forms, such as music, photographs, documents, or contact information kept in cloud storage; log-ins to social media platforms; cryptocurrencies; and credit card or airline reward points, to name a few. Digital assets are typically more vulnerable to identity theft and hacking once their original owner has passed away.

Changes In Client’s Relationships

A specific portion of your client’s estate plan that needs to be reviewed periodically is their choice of trusted decision makers to act on their behalf. These trusted decision makers are legally bound to act in your client’s best interests. Sometimes those who were originally chosen may no longer be appropriate for the role. Maybe there was a falling out, or the chosen decision maker may have moved away or had other personal changes that make it difficult or impossible for them to fill the role now. Even a corporate fiduciary may decline to act if it requires that a minimum value of accounts and property be under their management before it will accept an appointment. Your clients, especially if they have retired, may not have as much money and property as they did when they first created their estate plan.

Changes In Beneficiary’s Needs

Lastly, how your client has chosen to leave money and property to their loved ones may need to be updated. If they created or updated their estate plan shortly after the birth of their first child, they may have included general instructions on how the money and property should be used for the child’s benefit. However, now that their child is older, parents may want to revisit these sections to customize how and when their child receives money and property. Depending on their age, the parents will likely have a better idea as to their child’s unique personality, interests, struggles, and needs. Updating this section of their estate plan can enable the client to ensure that they are creating a plan for their child’s inheritance that will truly meet their needs.

Let Us Help Your Clients Make The Necessary Changes

To protect clients from these possible scenarios, it is incumbent upon advisors to periodically reach out to clients and remind them to review and update their estate plans. Not only is this practice good for clients, it is also good for advisors because it may provide an opportunity to help clients while increasing revenue through repeat client engagement. If you would like to discuss with Gunderson Law Group additional items to be on the lookout for or ways we can partner together to keep our clients up to date, let’s schedule a time to meet.