If you already have an estate plan (be it a will, living trust, power of attorney, health care directive, or some combination of these), congratulations! You're well ahead of most Americans. But an estate plan still requires some maintenance, so take time periodically to make sure that the plan you made still fits your evolving life. How often should you update your will or renew your estate plan? Whenever you experience the life events discussed below, you should consider whether you need to make any estate plan changes.
Having or adopting children is a very common reason to update a will; you want to make sure they're provided for in the event of your death. If your children are minors, use a will to name a personal guardian to take care of your children if you die. (Living trusts cannot name personal guardians, so even if you have a trust, you'll need to create or update a will for this purpose.)
If your children are minors, you'll also need to name an adult to manage any money or other property they inherit. Ideally, this person would be the same person as the personal guardian, but it's certainly possible to name a different adult for this task (perhaps someone more financially savvy). You can name someone to manage property in a few ways:
For more details on property guardianship, read Leaving an Inheritance for Children.
If you don't name a personal guardian or property guardian, a court will appoint someone when it becomes necessary. Understandably, few people are comfortable with the idea of leaving these major decisions to a court, and the best way to prevent that result is to plan ahead. For more information on how, see Estate Planning When You Have Young Children.
If you got married since making your estate plan, you should make a new will or living trust that names your spouse and clearly dictates what you want your spouse to inherit. In most states, your surviving spouse has a right to claim one-third to one-half of your property, even if you didn't leave anything to your spouse. In other states (known as community property states), your spouse will automatically own half of anything you earn during the marriage, unless you have a written agreement stating otherwise. (See A Spouse's Right to Inherit and Marriage & Property Ownership to learn more about these state laws.) These laws can protect your spouse in the event that you die without explicitly leaving property to your spouse. However, state laws vary, and it's always best to state your intentions as clearly as you can.
If you've named beneficiaries to inherit life insurance policies, bank accounts, and retirement accounts, consider whether you want to update these designations to include your spouse, typically by filling out new forms.
You should also look over your other estate planning documents, such as powers of attorney for financial or health matters. If you have named someone to act on your behalf in the event of your incapacitation, does it make sense to change this person to your spouse? If so, you'll need to revoke these documents and create new ones.
If you have remarried, you'll also probably want to take the steps discussed above to protect your new spouse. Your new estate plan must, however, be consistent with the property division agreements of your divorce decree. See below for more.
When people get divorced but don't get around to changing their wills before they die, most states will automatically revoke anything left to their former spouses. However, some states will follow what the will says. To avoid unexpected results, the best course of action is to make a new will or trust.
You'll also likely want to update your beneficiary designations on life insurance policies, bank accounts, and retirement accounts, as well as make new powers of attorney if you named your former spouse to act on your behalf, which is very common. In the case of retirement plans, it's especially important to update your beneficiary designations. If your retirement plan is governed by the Employee Retirement Income Security Act (ERISA), a federal act—and all 401(k)s are —then state rules that automatically revoke gifts to ex-spouses will not apply. For more details, see Revising Your Estate Plan After Divorce.
As you revise your estate plan, be aware that you must comply with the terms of your divorce decree and marital settlement agreement, which usually spell out who owns what property. Your settlement agreement might also restrict you from making certain changes; for example, it might say that you must keep your ex-spouse as the beneficiary of your life insurance policy.
Because married couples often leave most or all of their property to each other, if you lost your spouse, you'll likely want to create a new will or living trust and update your beneficiary designations. Also consider whether you'll need to create new powers of attorney or health care directives; this is often necessary because it's so common to name your spouse as the agent or attorney-in-fact who will act on your behalf in the event of your incapacitation.
If you inherited your spouse's retirement account, you can decide whether to roll over the account into your own retirement account (and don't forget to update the beneficiary of your account), or leave it in your spouse's name. The latter option offers some flexibility if you're under age 59½ (because you can take money out without early withdrawal penalties), but you'll need to take a required minimum distribution (RMD) each year if your spouse was 72 or over. If your spouse was not yet 72, you'll take RMDs starting the year your spouse would have turned 72.
If you bought a home or otherwise acquired real estate, make sure that this significant asset is accounted for in your estate plan. You might also want to take steps to keep your home out of probate (the court process that oversees the transfer of your property after you die), which can save your inheritors time and money. Here are a few ways to go about protecting your home from probate:
If you moved to another state, you might need to create new estate planning documents. Give special consideration to the following:
For more details, see Moving to a New State? Take a Look at Your Estate Plan.
If you've acquired substantial assets since you last visited your estate plan, reevaluate whether your current plan is still the best option for your circumstances. A will works well for many people, but it doesn't keep your property out of probate, while a revocable living trust does. An estate planning lawyer can also help you create irrevocable trusts to reduce estate taxes.
If, conversely, you've acquired significant debts, you can consult an estate planning lawyer to learn about options for reducing the burden on your loved ones, or even keeping certain assets out of the reach of creditors. Read more about minimizing the effect of your debt on your beneficiaries.
And, finally, consider the needs of your named beneficiaries. If their financial situation has changed, you might want to increase (or decrease) the gifts you originally made to them.
If you anticipate a long-term illness, make doubly sure you have up-to-date power of attorneys (POAs). A POA allows you to designate a trusted person to make decisions and act on your behalf. You'll need one for financial matters and a separate one for medical matters.
You should also create or update a living will (sometimes called a "declaration" or other state-specific term), which lays out your wishes for medical treatment and end-of-life care. (To confuse matters, in some states this document is combined with a medical POA; it's often but not always called an "advance directive.") This health care document will allow you to maintain some control—even in the event of incapacitation—by making your wishes known ahead of time. For more details, see Living Wills & Medical Powers of Attorney.