When should you consider or update your estate planning? Estate planning is different for everyone but usually includes having a will (outlines who is in charge and the beneficiaries of your assets when you die), powers of attorney (choosing a decisionmaker or agent to make financial and health decisions for you if you are unable to do so during your lifetime), naming beneficiaries on life insurance or retirement accounts, or setting up trusts (read What are Trusts and How Can You Use Them? for a discussion on types and uses of trusts).
Typically there are life milestones when you should look at your estate planning. Once you have it in place, a good rule of thumb is to review every five years or if there is a significant change in your life. Also, preparing for the unexpected should not be overlooked. Below are some milestones to keep in mind.
Turning 18 years of age
Age 18 is the age of majority in Pennsylvania, when you are able to sign legal documents. Even if you have minimal assets and think that you do not need a Will, it is still a good idea. Otherwise, state law will govern who receives your assets (read The Importance of a Will for a Younger Person). It is also important to have Powers of Attorney for financial matters and health care decisions. For more on the need for wills and powers of attorney, see Do I need both a Power of Attorney and an Executor?
Going to college
If you or your children are going to college, it often involves moving away. If there is a health care decision that needs to be made from afar, you definitely want to have a Health Care Power of Attorney or at least a HIPAA Release signed so that discussions and information flow with care providers are easier, and the decisionmakers have been chosen by you (Don’t Leave Home Without a Power of Attorney).
Prior to marriage, it is prudent to have discussions around titling of assets that each individual brings to the marriage. Who would be entitled to the assets and in what proportion in the event of divorce? Often, antenuptial agreements are discussed and signed. What are the pros and cons of keeping assets separate? Another important issue is reviewing benefits that may be impacted because of marriage.
Becoming a parent
Once you have children, there are many issues such as who would be the guardian if you died or were unavailable prior to your children attaining 18 years of age. Or, who is the best person to manage the money that you left for them? Read Do Young Parents Need Wills? for more on this topic.
If you get a divorce, it’s important to review your documents, especially your beneficiary designations on your retirement plans. If you fail to update your beneficiary on a certain type of retirement account and die with your ex-spouse as the primary beneficiary, your ex-spouse may still receive your hard-earned retirement money.
Change in your health or beneficiary circumstances
If you or your spouse or your beneficiary have a change in health or financial circumstances, it is a good time to review what you have in place. For example, if your spouse is permanently placed in a nursing home, upon your death you may not want your assets to go to your surviving spouse. You should update your will if your spouse needs long term care. Perhaps one of your beneficiaries has filed for bankruptcy or developed a bad gambling habit. It makes sense to reevaluate whether that beneficiary is going to inherit at all or in what manner.
Cash or property windfall
You may have inherited the family farm, the cabin or a trust fund or won the lottery. Depending upon the amount of money, there may be an impact on your tax planning. Or, you may need to set up protective trusts for your family or do charitable planning.
Planning for retirement takes some time. In addition to the financial considerations (sufficient assets and income) that everyone has at the forefront, we see Pennsylvania retirees make legal and estate planning mistakes. For example, one of the beneficiaries with special needs adds a level of complication to your estate planning. For more on this issue, read Mistakes Retirees Make — Beneficiaries with Special Needs. A recent change in the law with the passage of the SECURE Act has required additional review and planning ideas for your IRA.
It makes good sense to review your estate planning as you hit various life milestones or every five years. If you do not, you increase the risks that mistakes will be made and your wishes will not be followed (3 Estate Planning Mistakes People Make all the Time).