A common question from clients is whether and when their existing Estate Planning documents should be reviewed. In the past, the answer was simple—documents should be reviewed when there is a significant change in your family or financial situation, but at least every five to ten years. However, today there is a third event that should alert you to have your existing documents reviewed—changes in the law.
Changes in your family situation, such as marriage, divorce, birth of a child or grandchild or death of a beneficiary or trustee should alert you to consult an Estate Planning attorney and have your documents reviewed. If drafted properly, your documents will provide alternate provisions for most of these situations. However, it is imperative that any holes that such an event may leave are properly filled. Additionally, if you have minor children, it is important to keep your Guardians and successors up to date in accordance with your wishes. For example, if you named a couple that has since divorced, your Will should be amended.
Changes in your financial situation can cause additional tax liabilities which must be considered in your planning. Furthermore, significant changes in your assets may cause you to change the way that you wish to provide for your beneficiaries. For example, if your estate is small, you may be comfortable with the assets being distributed outright to your beneficiaries at your death. However, if your estate grows, you may prefer that the assets be held in Trust until your beneficiaries reach certain ages or you may consider providing for additional beneficiaries, such as grandchildren. Gift Tax and Generation-Skipping Transfer Tax considerations should also be discussed under these circumstances. Also, for a variety of reasons, you may have chosen to only have a Simple Will prepared at the time that your Estate Planning documents were drafted, but a Revocable Living Trust may now be necessary to serve your financial situation.
Changes in the Federal and Illinois Estate Tax laws are an annual occurrence these days. Most of these changes are forecast in advance and can be planned for or handled through flexible language in the documents themselves. However, it is crucial that flexibility not be assumed and existing documents be reviewed when such a change occurs or is expected to occur. A recent example of a significant change in the law occurred in 2005, when Illinois decoupled the state tax from the Federal Estate Tax. Even if changes are not required, it is beneficial to communicate with an Estate Planning attorney to ensure that your documents are serving your goals and that available tax exemptions are being leveraged to the maximum extent possible.
The result of an Estate Planning document review can take one of three forms: (1) no changes; (2) an amendment to the documents to make minor changes, or (3) a completely new set of documents. Amendments are generally appropriate when the changes are limited to names, beneficiaries or trustees. A significant law change or changes to numerous sections of the Trust will more likely require a restatement of the Trust document and possibly a new Will and Powers of Attorney as well.