Upon finishing the estate planning process, clients often ask the understandable question, “how often should I update my estate planning documents?” I like to think that this question is spurred by the client’s eagerness to repeat the wonderful experience that is the process of discussing and drafting the estate planning documents and not, rather, that the question is asked in hopes that the client will never have to go through this process again.
The short answer to the question about how often to update an estate plan is as follows: best practice is to review/update your estate plan either (1) every three years, or (2) after major life changes occur. Major life changes can include the birth of new children or grandchildren, dramatic change in assets or type of assets, divorce, or the death of close family members.
For the purposes of this article, the term ‘estate plan’ includes Wills, Powers of Attorney, Advance Health Care Directives, and Disposition of Remains forms. There are several other documents that may make up an estate plan, but the above documents are most commonly used estate planning documents.
The Three-Year Power of Attorney Recommendation
Power of Attorneys, more so than the other common estate planning documents, should be regularly updated every three years, even without the occurrence of any major life changes. The reason for this recommendation comes down to one simple reason: banks. More specifically, the banking industry’s reputation for being difficult to work with when presented with a power of attorney that was executed more than a few years ago. Although these older powers of attorney are no less legally valid because of their age, many banks are nonetheless notorious for dragging their feet when asked to honor older powers of attorney. Estate Planning Attorney listservs are a common forum for complaints by attorneys lamenting the process of working with a bank to force them to accept an old power of attorney.
Perhaps some banks are hesitant to honor older powers of attorney because they worry that the document was later revoked, and that the person presenting the old power of attorney is trying to fraudulently access the incapacitated person’s bank account. Whatever the reason for the banking industry’s notorious hesitance to accept older powers of attorney, the lesson is that everyone would be wise to regularly update their power of attorney documents, so as to avoid the possibility of this headache.
Major Changes in Life Circumstances
There are several common triggers for updating estate planning documents that may not come as a surprise, such as the birth of a new child or a divorce. New changes, or losses, to a family warrant a review of an estate plan so as to ensure that the change is provided for in all of the Estate Planning documents. Other less obvious triggers include dramatic changes in wealth or the type of assets owned (for estate tax or probate reasons) and the death of friends or family members who are part of your estate plan, whether they are beneficiaries or some kind of fiduciary such as an executor or power of attorney holder.
A Last Will and Testament can be a fairly flexible document with built-in planning for future major life changes, but this flexibility cannot be blindly relied on to accommodate for every future change in circumstances. Take, for example, the common provision found in Wills to distribute assets to an individual’s descendants ‘per stirpes’ (by branch). When this provision is properly drafted, it can ensure that each newly-born child is entitled to receive his/her equal share of the testator’s assets.
Parents must remember, however, that the Will does not have control over all of their assets. On the contrary, assets that pass via a “beneficiary designation” form are transferred entirely separate from and, generally outside the control of, the Last Will and Testament. These ‘beneficiary designation assets include life insurance, retirement accounts, some mutual funds, and other assets that pass after death according to a contractual document. These assets transfer after death not according to the Will but, rather, according to the names/designation listed on the beneficiary designation form. If a new child is born, but the beneficiary designations on these valuable assets do not take into account the new child, then these assets will not pass to the new child, despite any provision in the Will to the contrary.
The example of updating beneficiary designation is just one example out of many that demonstrate that major life changes warrant a review of an estate plan. Many attorneys charge only a nominal amount to review estate planning documents. As with many matters involving estate planning, taking quick and low-cost steps today can save potentially costly and long-term problems in the future.