Having an estate plan is a crucial step in guaranteeing the protection of your loved ones and your wishes when you are no longer around. An estate plan typically includes a will, trusts, powers of attorney and beneficiary designations for life insurance policies, retirement accounts and other assets. At its core, this comprehensive plan allows you to still have a hand in the distribution of your assets, such as property, finances and personal belongings, in the event of your death or incapacitation.
However, creating an estate plan is not a one-and-done task. It is a dynamic process that needs to evolve with the changes in your life so that it continues to reflect your new circumstances, goals and priorities. But when should you update your estate plan?
Marriage or divorce
Getting married or divorced is a significant life change that impacts the validity of your estate plan. In California, for instance, marriage can automatically revoke a prior will, unless the will specifically states otherwise. This means that if you get married and fail to update your will, your new spouse may not inherit your assets as you intended. On the other hand, if you are in the process of getting a divorce, it is essential to review your estate plan to ensure that your former spouse is no longer a beneficiary or executor of your estate.
Birth or adoption of a child
The arrival of a new child, whether through birth or adoption, is another significant life event that necessitates an update to your estate plan. As a parent, you want to make sure that your child remains protected and provided for in the event of your passing. This includes naming a guardian, setting up a trust for their benefit and updating your beneficiary designations.
Significant financial changes
Major financial changes, whether an increase or decrease in assets, require an estate plan update. For instance, if you inherit a considerable sum of money, you may want to consider setting up a trust to manage the funds and minimize taxes. Similarly, if you sell a business, you may need to update your estate plan to reflect the changes in ownership and asset distribution.
Failing to update your estate plan can lead to many unintended consequences, including disputes among family members, unintended beneficiaries and even legal battles. By regularly reviewing and updating your estate plan, you can ensure that your hard-earned wealth reaches your loved ones as you intended.