By Steven Latterell, Ice Miller LLP
It is not a stretch to say that whenever an individual goes through significant life changes, there are likely to be corresponding changes to his or her estate plan. In its most common form, parents and grandparents often contact an estate planning attorney when a new child or grandchild is born. Similarly, an estate plan is often updated after a loved one has passed away. The need for creating or updating an estate plan is quite obvious in these situations. There is, in fact, no shortage of life events that similarly should invoke the idea of contacting an estate planning attorney to see if any changes are required to an individual’s estate plan. What follows is a non-exhaustive list of some of those instances.
Moving to a new state. There are approximately 33 states that do not have a state-level estate or inheritance tax, while the remaining states do levy such taxes under their own unique taxing systems. Even if an estate does not exceed the federal estate tax exemption, it is quite possible that a lower state-level estate or inheritance tax exemption could mean a tax liability would exist in such state. In other words, moving to a new state could dictate a change in the distribution scheme of an individual’s estate plan in order to minimize those taxes.
Starting a new job. Although probably not very high on an individual’s list of concerns when starting a new job, this is another occasion when estate planning should come to mind. In this instance, a new job might come with a new 401(k) account and employer-provided life insurance. The importance of properly designating primary and contingent beneficiaries to coordinate those new assets with an individual’s overall estate plan, and to avoid the probate process, is something that is often overlooked.
Purchase of second home. When an individual or couple purchases a second home it is important to consider the titling of that home and its distribution under the estate plan. Depending on the circumstances, it might be advantageous to (i) own the home in an LLC, for instance, if the home will be rented or if the home will be inherited by multiple children, or (ii) title the home or the LLC in the name of the individual’s revocable trust in an attempt to avoid the probate process and potentially an estate administration in another state (i.e., if the second home is located outside of the state of primary residence).
Divorce or legal separation. Whether it is the individual or perhaps his or her descendant, divorce or legal separation is an appropriate time for an individual to revisit and potentially update beneficiary designations for particular assets and under the will and revocable trust. The updates might include removing the former spouse, stepchildren or in-laws from the estate plan, and also might include changes to the specific assets being distributed (due to changes in the individual’s assets, post-divorce). It also might be the case that the estate plan needs to be updated to conform with specific directions under the divorce decree.
Post-retirement considerations. There often is a change in an individual’s lifestyle and financial goals after he or she reaches retirement and is able to gauge his or her potential future wealth needs. This change in goals might include a newfound interest in making wealth transfers to descendants or to charities. In these instances, an estate planner may counsel the individual through the wealth transfer process and help design a plan to make those transfers in an efficient manner for estate, gift and income tax purposes.
There’s no doubt that updating an estate plan will not likely be among the first concerns that an individual has upon a significant life-changing event. Nonetheless, in order to maintain a well-functioning estate plan, it should be on the shortlist of tasks to consider and address soon after those initial concerns are resolved.•
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances. This publication was originally shared on the IndyBar Estate Planning & Administration Section blog. To read more from the section, visit indybar.org/epa.