How Often Should You Review Your Estate Plan?

Estate planning, encompassing wills, trusts, powers of attorney, and healthcare directives, is a crucial aspect of financial well-being that too often gets overlooked after the initial setup. Regular reviews of your estate plan ensure that your assets are distributed according to your wishes and can significantly impact your legacy and your family’s future. This article explores the frequency of these reviews, the importance of keeping your estate plan up-to-date, the potential consequences of neglect, and examples of updates that may be necessary in 2024.

Why Regular Estate Plan Reviews are Essential

  1. Adapting to Life Changes: Major life events such as marriage, divorce, the birth of a child, the death of a beneficiary, or significant changes in financial status necessitate updates to your estate plan. These life changes can alter your intentions for asset distribution, necessitating adjustments to wills and trusts to reflect your current wishes.
  2. Legal and Tax Implications: Laws governing estate planning and taxation can change. Staying abreast of these changes and adjusting your plan accordingly can optimize tax benefits and ensure legal compliance, preventing unintended consequences or disputes among heirs.
  3. Maintaining Control and Legacy: Regular reviews allow you to maintain control over your assets and how they’re distributed, ensuring your legacy is preserved as you intend. Without updates, outdated documents could lead to assets being distributed to unintended beneficiaries or in unintended ways.

Recommended Frequency of Estate Plan Reviews

It’s advisable to review your estate plan at least every three to five years. However, should a significant life event or legal change occur, an immediate review is prudent. This ensures that your estate plan aligns with your current circumstances and legal standards.

2024 Legal Updates: What to Look For

Given the ever-evolving legal and financial landscape, here are a few examples of updates individuals may need to make in 2024:

  • Adjustments for New Tax Laws: With the potential for new tax legislation under discussion, estate plans may need adjustments to minimize estate and inheritance taxes.
  • Inclusion of Digital Assets: As digital assets become increasingly significant, including social media accounts, cryptocurrencies, and digital properties, they should be considered in your estate plan.
  • Updating Trustees and Executors: Changes in your relationships or the circumstances of those you’ve named as trustees or executors may necessitate changes to ensure these roles are filled by those capable and willing to manage your estate according to your wishes.

More specifically, let’s review recent legislation that may affect your estate plans.

Impact of New California Legislation on Estate Planning

Probate Threshold Increase

In an effort to streamline the administration of estates and reduce the burden on families, California has adjusted its probate threshold. This change means that estates with assets below a certain value can avoid the lengthy and often costly probate process. Previously, estates valued at more than $150,000 were subject to probate. Recent legislation has increased this threshold, which can significantly impact estate planning strategies by potentially exempting more estates from probate. This shift emphasizes the importance of understanding how your assets are valued and possibly restructuring ownership or beneficiary designations to take advantage of the new threshold. As a result, individuals may need to update their estate plans to ensure that their estates qualify for simplified procedures, thereby reducing administrative burdens on their heirs.

Proposition 19

Proposition 19, passed by California voters, significantly alters property tax rules, particularly affecting real estate transfers between parents and children. Before Prop 19, parents could transfer primary residences of any value to their children without the property’s tax basis being reassessed, along with a $1 million exemption for other property types.

Now, Prop 19 limits this exclusion to only the primary residence, and the child must use the property as their primary residence; if the property’s value exceeds the parent’s tax basis by more than $1 million, a reassessment may occur.

This change has profound implications for estate planning, especially for families with valuable real estate that might have been planning to pass properties to their children without reassessment. Estate plans may need to be revisited to account for these new rules, potentially altering strategies for transferring real estate assets and considering the implications for property tax liabilities.

Federal Estate Tax Exemption: Recent Changes and Implications

The Federal Estate Tax Exemption amount is a critical component of estate planning, determining how much of an individual’s estate can be passed on to heirs without incurring federal estate taxes. Over recent years, this exemption amount has seen significant changes, reaching historically high levels under the Tax Cuts and Jobs Act (TCJA) of 2017. However, it’s essential to stay updated on the current exemption amounts and any legislative adjustments, as these can influence estate planning strategies and decisions.

Key Points of the Federal Estate Tax Exemption

  • Exemption Amount: For 2024, the Federal Estate Tax Exemption was set at $13.61 million for individuals and $27.22 million for married couples, with adjustments for inflation expected to increase these amounts year-over-year. However, these figures are always subject to legislative changes.
  • Sunsetting Provisions: The TCJA provisions, including the increased estate tax exemption, are set to expire after 2025, potentially reverting to pre-2018 levels (approximately $5.49 million per individual, adjusted for inflation) unless Congress enacts further legislation.
  • Impact on Estate Planning: The current high exemption levels provide an opportunity for individuals and families to transfer significant wealth without incurring federal estate taxes, potentially through gifts or trusts.

Consequences of Not Reviewing Your Estate Plan

Failing to update your estate plan can lead to several unintended consequences:

  • Assets Distributed to Unintended Beneficiaries: Without updates reflecting changes in relationships, an ex-spouse or estranged relatives could inherit your assets.
  • Increased Legal Disputes: Outdated plans may lead to family disputes, with potential legal battles over your estate that can diminish the value of the inheritance through prolonged litigation and legal fees.
  • Tax Inefficiencies: Not optimizing your estate plan for current tax laws can result in a higher tax burden on your estate, reducing the value of the inheritance for your beneficiaries.

Conclusion

Regularly reviewing and updating your estate plan is not just about legal compliance; it’s a profound act of care for your loved ones and a critical component of your financial health. By ensuring your estate plan reflects your current wishes and circumstances, you protect your legacy, minimize potential disputes, and ensure that your assets are distributed as intended. In 2024, take the time to review your estate plan, considering the latest legal changes, the inclusion of digital assets, and any changes in your personal circumstances. This proactive approach ensures peace of mind for you and your beneficiaries.

Contact an Orange County Estate Planning Attorney

At Evolution Tax and Legal, we provide a unique value proposition to all of our estate planning clients: our team is dually-certified in law and accounting, which allows us to provide insight into the financial aspect of estate planning, as well as the legal implications for your heirs.

Our Orange County estate planning attorneys offer a breadth of estate planning services, including:

  • Wills: Our team will help you identify all your assets, real property, and possessions and determine the financial value of all these assets.
  • Trusts: Our team will determine if it will be beneficial to you or the beneficiaries of your estate to establish a trust, which will help minimize estate taxes your beneficiaries may face in the future. We can help with the establishment of a trust, appointment of trustees and communication of trust instructions and distribution among beneficiaries in the future.
  • Probate: If necessary, our estate planning lawyers can work with you to make the probate process as seamless and short as possible.

February 6, 2024

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