According to most financial pros, a lot of us — most actually — may leave a legal, financial and emotional mess behind when we check out. Among the reasons are the fact that most don’t know the value of their estates because most of us don’t think we are worth enough — alive or certainly after death — to have an estate. But for many people, especially long-time feds who are homeowners, the estate is there. But instead of it going to the person(s) of your choice with minimal fuss, your financial legacy could be tied up in court for a long time. And it could go to the wrong person, like the ex-spouse you managed to forget, or to a child or family member who doesn’t deserve it.
Tom O’Rourke, a Washington D.C. area estate and tax attorney, says that many people don’t think they have an estate even though they own property, can provide a survivor benefits, or have insurance and a substantial TSP account easily in the 7-figure category.
O’Rourke says people with estate plans need to review them at least every three years, but most don’t. Another problem is that many don’t have a plan, or understand why they — with their modest lifestyle — need one. The review is necessary because things change: marriage, divorce, financial needs, and what made sense for you and your family 5-to-10 years ago may have totally changed. He says that break-ups among adult, otherwise loving siblings often happen after the death of a loved one and the disposition — or not — of their estate. He says he’s seen many otherwise close families break up following the death of a parent. And in some cases, the “children” and their kids never reconcile.
First, listen to today’s Your Turn at 10 a.m. EDT streaming here or on the radio in the D.C area at 1500 AM. Tom O’Rourke, a former attorney with the IRS, will explain his 11-point checkup he believes most of us should have at least every three years. Because things change, people change and enter or exit your life. As do federal and state tax and estate rules. So is your internal “check oil” light blinking? Take a look at his checklist and his reasons why you may be long overdue:
A common question that estate planners get is, “now that I have a plan, how often do I need to review or change it?”
In general, an estate plan needs to be revised when there is a change in the law or your life that affects your plan. Your advisers (financial planner, lawyer or tax adviser) should advise you of any changes in the law that may have an impact on your plan. Your advisers, however, may not be aware of any changes in your life that could require a change in your plan. The following are some of the life events that require you to at least review you plan and determine whether a change is required. Here’s your 11-point checklist from Tom:
A change in marital status. Marital status has a highly significant impact on an estate plan. Virtually all states have a spousal inheritance statutes that may affect your existing estate plan. If there is a change in your marital status you need to make your estate plan reflects this. Moreover, for many individuals their “estate” consists of items for which they designate a beneficiary (retirement benefits, tax deferred account, or life insurance). Any existing beneficiary designations need to be reviewed or revised to reflect your new marital status.
Birth of a child. The birth of a child should require you to think about how and by whom will the child be cared for. You need to name a guardian for the child. In addition, you want to make sure that any assets that will be used for the child’s benefit are held and managed wisely until the child reaches an age when he/she can manage independently. Thus, your estate plan may need to be modified.
Change in your job. For many individuals their “estate” is comprised largely of job related benefits such as insurance, pensions plans, and tax deferred account. You need to discuss such benefit changes with your estate and financial planner.
Sending a child to college. Many times a child starts college around the time they reach age 18 which is the age of majority in most states. Thus, you, as their parent, no longer has the legal authority to act on their behalf. It is advisable to have your children execute powers of attorney to allow you to act on their behalf?
Marriage of your child. The marriage of a child may or may not cause you to reconsider your estate plan. Are you concerned about a possible divorce and having your assets pass to your former son or daughter in law?
Birth of grandchildren. Should you revise your estate plan to insure that you provide some help to the grandchild to pay for education expenses, or possibly the purchase of a home?
As part of your overall retirement planning it is advisable to discuss how your life in retirement may change your estate plan.
You or a member of your family become disabled.
Moving to a different state. A new state may have laws that could impact your estate plan. This should be discussed with an estate planner in your new home.
Death of a spouse of a loved one. Frequently your spouse is the primary beneficiary under your plan and is also the agent you have named to act on your behalf. Revising you plan is an absolute must in many situations.
Any other matter that could have an impact of your estate plan. For example, a person named in your estate plan with whom you no longer have close relationship.
Nearly Useless Factoid
The Tom Hank’s classic Cast Away was filmed on the island of Monuriki, Fiji, in the Mamanuca Islands off the coast of Viti Levu — Fiji’s largest island.