How Often Should You Review or Update Your Estate Plan?
How often we should all update our estate plans always depends on the circumstances. At age 18, everyone should have a durable power of attorney, health care proxy, and HIPAA release, just in case an accident occurs. These should then be updated upon marriage, having children, or accumulating significant assets, with the addition of a will and perhaps a trust. Presumably, the people you would appoint at 18—parents or siblings—are not those you would appoint at 28 or 38. After this base plan is put in place, a new plan may not be necessary for decades, absent a change in circumstances. A divorce, death in the family, or move to a new state would indicate the need to at least review your plan.
Unfortunately for us baby boomers, after age 55, the chances of dying or becoming disabled increase significantly as every year goes by. It is important to review your plan at age 55 and then to do so again every five years. (Unfortunately, this sounds a bit like advice about colonoscopies.) Circumstances often change in these later years—retirement, moving to a new state, disability of oneself or beneficiaries—as do tax and public benefit laws. For reasons that make no logical sense and probably violate the law, some financial institutions will only honor recently-executed durable powers of attorney. So it can be useful to sign new ones every five years. The rest of your plan may not need to be changed, but a review is useful just in case. Think of it as your annual medical check up, except that you only have to do it every five years.
We recently had a case in our office that shows the need to review your estate plan, if not every five years, at least every few decades.
John executed a will in 1988. He was not married and did not have children and he split his estate among his three siblings. When he died 27 years later in 2015 when he was 82 years old, he was still unmarried and childless. In the meantime, his circumstances had not changed. But those of his siblings had. One was living in a nursing home; one in assisted living; and one had passed away leaving five children. The will provided that the children of a deceased sibling would receive his share.
Unfortunately, one of those nieces and nephews, who was entitled to a 1/15th share of John’s estate, about $80,000 in this case, was drug addicted and homeless. His siblings were afraid that when he received these funds he would spend the money on drugs, the quantity of which then available to him might kill him.
The brother who was living in a nursing home was covered by Medicaid. The receipt of funds – about $400,000 – would make him ineligible for further benefits. At current rates, the inheritance would be completely depleted in three years and if he passed away before he spent it all down, the state would have a claim against his estate for reimbursement of past expenses. We didn’t know if the third sibling who was then in assisted living might need nursing home care in the future with her inheritance being spent down in a similar way.
Due to the situation of these beneficiaries, this was a case that cried out for a trust that would have permitted John’s siblings and nieces and nephews to benefit from his generosity, but for his brother in a nursing home to continue to receive Medicaid-covered care and his nephew to receive some benefit from his share without it going into his arm in days or weeks. Of course, John could not know this in 1988, which is why periodic reviews are necessary.