Creating an estate plan is a crucial step in securing your family’s future. Once your plan is in place, it’s natural to feel a sense of relief.
However, estate planning isn’t something you do once and forget. Life is constantly changing, and your estate plan needs to change with it. Regular estate plan reviews and updates are essential to ensure that your plan continues to reflect your current situation and goals.
Adapting to Financial Changes
As your financial circumstances change over time, your estate plan may require adjustments. If you experience significant financial growth, your estate planning strategy should evolve to protect your assets and minimize tax liabilities.
One key factor to consider is the federal estate tax. Currently, the estate tax exclusion is $13.61 million, which means you can transfer up to this amount without incurring federal estate taxes.
However, this exclusion will decrease to the 2017 level of $5.49 million in 2026 indexed for inflation. The estate tax exclusion was increased back then when the Tax Cuts and Jobs Act was enacted, but it will sunset on January 1, 2026.
In addition to federal taxes, you must also consider state-level estate taxes. While Arizona doesn’t impose an estate tax, 12 states do have these taxes. The state-level exclusions are often much lower than the federal limit. For example, Oregon has a tax with a $1 million exemption.
If you own property in a state with an estate tax, it would apply to your estate if the value of the property exceeds the exclusion in that state.
Regularly reviewing your estate plan allows you to make necessary changes to avoid potential tax burdens and ensure that your assets are distributed according to your wishes.
The First Stage
Your estate plan should be in place as soon as you become financially independent. This initial plan typically includes life insurance, an asset transfer strategy, and a plan for potential incapacity.
Incapacity planning involves creating advance directives, such as a living will, which outlines your preferences for life-sustaining treatments. Additionally, a durable power of attorney for healthcare designates someone to make medical decisions on your behalf if you’re unable to do so.
Growing Family
As your life progresses, your estate plan should evolve to reflect changes in your family. Marriage is usually the first significant life event that will require an update to your estate plan.
At that point, you might decide to create a joint estate plan with your spouse. A living trust can be an effective tool in this scenario, offering flexibility as your family grows.
With a shared living trust, you and your spouse act as co-trustees during your lifetimes. The trust can include provisions for your children, ensuring their financial security if something happens to you and your spouse.
A successor trustee takes over management of the trust if both you and your spouse pass away, protecting the interests of your minor children.
In addition to updating your trust, it’s also important to name a guardian for your children in your will. This ensures that your children will be cared for by someone you trust if the unthinkable occurs.
Addressing Changes in Marital Status
If you experience a change in marital status, such as a divorce or remarriage, it’s critical to revisit your estate plan. For example, if you remarry and have children from a previous marriage, you’ll want to take steps to protect their inheritance.
A qualified terminable interest property (QTIP) trust can be an effective tool in these situations. This type of trust allows you to provide for your new spouse while ensuring that your children eventually receive the assets you intend for them.
Here’s how it works: if you pass away before your spouse, the QTIP trust distributes income to your surviving spouse for the remainder of their life. The trustee may also allow your spouse to use certain trust assets, such as your home.
Upon your spouse’s death, the remaining assets in the trust are passed on to your children, ensuring that they receive their inheritance.
This approach helps balance your desire to care for your spouse with your responsibility to protect your children’s financial future.
Time to Update Your Estate Plan?
Our AZ estate planning lawyers are ready to help you navigate the complexities, ensuring that your plan reflects your current circumstances and future goals.
If you’ve recently moved to Phoenix, Scottsdale, Tucson, Oro Valley, or any of the surrounding communities, please reach out to our offices by calling (602) 249-1328 and our caring staff will help you determine if updating your estate plan is right for you and your family.
You can alternately use our contact form to send us a message if you would rather reach out electronically.
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