I OFTEN TALK with estate planning attorneys—and they tell me that individuals typically complete an estate plan just twice in their lives: upon marriage and upon retirement.
On the one hand, this is good. Major life changes warrant a review of your estate plan and an update to key documents. On the other hand, this is not so good. Much like other areas of your financial life, your estate plan needs to be reviewed on a regular basis.
My experience has been that most folks know they need to get their estate plan done, but they aren’t as motivated as they need to be. Even when they are motivated, the process simply gets placed on another “to-do” list. After all, who wants to spend part of their weekend thinking about death and incapacity?
Completing your estate documents can be one of your greatest gifts to your family. That gift will be given at an incredibly difficult time, but will be enormously appreciated. You have the opportunity to guide how the end of your life and your estate are handled—and to do so while you still have the ability to make those tough decisions. Leaving an array of questions for your loved ones to answer will only make that time even more upsetting.
Why should you review and update your estate plan more than twice in your life? Changes in your family, your business and the tax rules are all good reasons to review your plan. Here are three examples of what I mean:
1. Estate tax exemption and clawback. Thanks to 2017’s Tax Cuts and Jobs Act, the federal estate tax exemption is now $11.4 million per person, or $22.8 million per married couple. This means you can bequeath up to this amount and avoid estate taxes. The IRS has also provided guidance that, if you gift this amount during your lifetime and die when the exemption is reduced after 2025, you won’t be subject to any “clawback” taxes.
2. Federal vs. state tax law. Despite the increase in the federal estate tax exemption, some states continue to have a lower threshold for estate or inheritance taxes. Depending on which state you live in, your assets may be subject to state estate taxes, even if they avoid federal estate taxes. With careful planning, you could minimize this state tax hit.
3. Fair does not mean equal. If I’ve learned one thing in my business life, it’s this: Everyone has a different definition of fair. For example, if you have two children, and one has a successful career and the other has special needs, do you leave them the same amount of assets? What if one child wants to take over the family business and the other wants no part of it? By regularly revisiting your estate plan, you can ensure you make the right decisions for your family’s circumstances.
Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross’s previous blogs include Bad Timing, Never Too Late and Head Games. Follow Ross on Twitter @RossVMenke.