While most of us are familiar with the saying “Nothing’s certain but death and taxes,” it’s important to remember that life and tax codes change all the time—and that some of these changes can put your estate plan intent at risk.
Take the Treten family, for example. In 2008, Leonard and Eileen Treten, founders of the Magnolia Audio Video Company who had amassed a $100 million fortune, made estate plans to leave the maximum federal estate tax exclusion amount to their children, with the balance passing to the surviving spouse. Had either Treten died in 2008, their kids would have received $2 million. As it turns out, Eileen Treten died in 2010—a “zero estate tax” year. The unintended consequence of this timing? The plan, as written, gave Eileen’s entire half of the estate to the children, and disinherited her husband.
Leonard was forced to take his two daughters—who were pleased as punch with the 2010 playbook—to court to uphold the intent behind his and Eileen’s estate plan. Fortunately for him, he won. But the fight fractured the relationship between Leonard, his daughters and grandchildren. And the court case became a textbook example of the worst that can happen when you don’t keep your estate plan current.
Estate Planning Is Not a One-Time Event
Here’s the thing about estate planning. Oftentimes, people get their plan done, congratulate themselves on checking a “not fun, but necessary” item off their to-do list and file it away to collect dust.
Problem is, estate planning is a process—not a one-time event. And, as the Treten case illustrates, failing to update your estate plan regularly puts your intent at risk. Worse, it can wreak havoc on your family.
There are two main reasons to update your estate plan regularly: One, life throws you curve balls. Two, so does the tax code.
When Should You Update Your Estate Plan?
Here are some tells that it’s time to get with your estate planning attorney and hit “refresh” on your estate plan:
- Someone named in your plan dies.
- New people come into the family, say through birth or adoption.
- You’ve changed your mind about including someone in your plan.
- You or someone in your plan marries, divorces or blends families.
- Kids named in your plan turn 18.
- You acquire or dispose of a sizable asset.
- Your state has enacted new laws that affect your plan. (Hello, Tretens!)
- You change states. (Did you know each state has its own legal requirements for making a will?)
- You’re approaching age 70 ½. If you have an IRA, 401(k) or other qualified plan that requires you to start taking distributions at age 70 ½, make sure you’re “good” with your beneficiary. This individual will have an irrevocable impact on your and their required distributions.
- It’s been at least a few years since you looked at your plan. Some argue you should review your estate plan once a year—which likely would have saved the Tretens a lot of anguish. At the very least, do so every three to five years to catch any circumstances that put your plan at risk.
Keep Your Plan Current To Keep It Real
Don’t leave your estate plan to chance. The hard truth is, failing to keep your plan updated can be disastrous. You have a plan for a reason, right? To make sure it comes to fruition, check in with your legal advisor regularly. Even if you’ve carefully thought through all possible outcomes at one point in time, there’s always a chance life and the tax code could throw you a curve ball. Death and taxes may be certain, but that doesn’t mean you can’t outsmart them both—and hit a home run.