If you don’t have an estate plan, you aren’t alone. Many Californians die before drafting wills, creating confusion among heirs and leaving asset distribution to probate judges. Even individuals who have estate plans can wreak havoc among beneficiaries, if the plans are not updated regularly.
Wills and trusts preserve assets and shield them from over taxation. The entire legal strategy to leave assets to loved ones can be upended when estate plans fail to reflect changes in relationships, income and laws.
Some experts recommend reviewing an estate plan every time a significant event like a windfall, marriage or tax law change occurs. If none of these events occurs, a review every five years is recommended.
Estate assets that aren’t taxed this year might be taxable in 2013. The 35 percent federal estate tax rate and exemption ceiling are likely to change without congressional action. The $5.12 million estate tax exemption for 2012 could dwindle to $1 million. What goes for tax revenues does not get passed to heirs.
Flexibility allows estate plans to weather tax changes and income fluctuations. Experts recommend transferring blossoming assets to family members. Shifting an asset now that is expected to increase in value later can benefit the recipient and keep the appreciation from being taxed with your estate.
Take advantage of tools to transfer wealth before they become unavailable. Some vehicles like trust or family installment sales and GRATs (grantor retained annuity trusts) could disappear with next year’s presidential budget proposal.
Marriage, births, deaths and divorce have immediate impacts on estate plans. New parents can establish a guardian for their children with a will. Grandparents may want to reconfigure asset distribution with every grandchild born.
Estate plan reviews allow individuals to include new family members and exclude outdated beneficiaries like a former spouse or a spouse who is deceased. Along with an estate plan revision, individuals will also want to update beneficiary names on insurances, retirement plans and other inheritable accounts.
Source: forbes.com, “When Should You Redo Your Will?” Deborah L. Jacobs, Aug. 9, 2012