Practicing Good Estate Plan Hygiene
It’s common to think of an estate plan as a one-time task. After all, isn’t the whole point that you no longer need to worry about what happens to your assets—and your heirs—after you’re gone? But while your estate plan may be designed to endure, it should never be treated as a “set it and forget it” part of your financial plan. Life changes constantly, and your estate plan should evolve along with it.
That’s why it’s important to practice good estate plan hygiene. Even if your family hasn’t experienced major life changes that call for immediate review (more on that below), it’s wise to review your plan annually to ensure everything is accurate and remains aligned with your wishes.
Here are five key areas to review during your regular estate plan checkup:
1. Review Your Beneficiaries
Your estate plan governs how most of your assets will be distributed. But some accounts—such as retirement accounts and life insurance policies—typically pass directly to the named beneficiary. If you’re divorced, do you still want your ex-spouse listed as the beneficiary of your 401(k) account? If not, contact your financial institution to update your beneficiary information. If an account lists a deceased person as the sole beneficiary, the funds will generally need to pass through costly and time-consuming probate on their way to next of kin.
Other beneficiary updates might be less obvious than death or divorce. For example, you may have named a custodian to manage retirement accounts you’ve designated to a minor child, as required by law. But when that child reaches adulthood—age 18 in most states—they no longer need a custodian.
The good news is that beneficiary updates are usually straightforward. Most financial institutions allow you to make changes online quickly and easily.
2. Revisit Fiduciary Appointments
Fiduciaries are the people you’ve named to carry out your wishes, including trustees, executors and individuals with powers of attorney over health care and financial decisions. But someone you named years ago may no longer be a good fit.
A fiduciary may have developed health issues or even died. Less dramatically, they could decide they no longer want the responsibility. People with minor children often name a sibling as fiduciary, then reassign the role to an adult child later.
It’s a good practice to check in with fiduciaries every year—and always after making changes to your estate plan—to confirm they are still willing and able to serve. Backup fiduciaries are equally important and should be reviewed and contacted as well.
3. Update Assets Held in Your Trust
Failing to update trust funding can undermine one of the primary benefits: avoiding the time-consuming and public probate process. If your estate plan includes a trust, keeping it properly funded is essential. Assets such as real estate, business interests and financial accounts generally need to be titled in the name of the trust to sidestep the probate process and keep the trust functioning as intended.
To keep your trust current, make sure newly acquired assets—whether a new home or a valuable piece of art—are properly titled in the name of the trust. If assets aren’t properly retitled, they may unintentionally bypass the trust.
4. Align Your Plan with Recent Life Changes
Your life is constantly evolving—and your estate plan should, too. If you’ve experienced a major life change such as marriage, divorce, separation, the birth or adoption of a child or grandchild, it’s a good time to ensure your estate plan reflects those changes. Similarly, the death of anyone involved in your estate plan—such as a fiduciary or health care proxy—should trigger an update.
Changes in financial circumstances also matter. For instance, a big increase in your net worth from the sale of a business or an inheritance may warrant a review of your overall estate planning strategy.
Relocating to another state can also have meaningful implications, since estate and probate laws vary by jurisdiction. For example, community property states often grant surviving spouses specific rights to retirement assets, regardless of beneficiary designations. Also, keep an eye on what lawmakers in Washington are working on, since new federal tax laws can have big impacts on your plan.
5. Ensure Your Documents Are Safe but Accessible
An estate plan is only effective if the right people can locate the documents when needed. Be sure your original documents—including wills, trust agreements, powers of attorney and health care directives—are stored securely in a location that trusted individuals can access.
Good storage options include a fireproof home safe or secure storage at your attorney’s office. A bank safe deposit box can be difficult to access without a court order, which may create complications if heirs or fiduciaries need immediate access.
Beneficiaries generally don’t need detailed account information in advance. In most cases, it’s sufficient for trusted individuals to know which financial institutions hold your accounts. With a death certificate and Social Security number, institutions can typically identify and locate assets.
By all means, make digital copies of everything in your estate plan, but keep in mind that courts and other institutions typically require originals with “wet” signatures.
Estate Plan Maintenance Is Part of Sound Financial Planning
In many cases, annual estate plan reviews are relatively simple. But during periods of significant personal, financial or legal change, more substantial updates may be necessary.
Estate planning works best when treated as an ongoing process rather than a one-time event. Regular reviews can help ensure your wishes remain current, your loved ones stay protected and your plan continues to work as intended. If you have questions about your estate plan, let’s discuss them. With the help of your estate planning attorney, we can help make sure your plan reflects your life today—and your hopes for the future.
