Estate planning is not just for the elderly. Having estate planning documents in place just in case something unforeseen happens is always a good idea. However, issues can arise if this information is not updated throughout your life. Estate planning documents should be updated if you are married, divorced, have children or undergo major financial changes. In fact, every 3-5 years there is a good chance something has changed in your life that will require an update to your estate plan.
Personal changes are not the only reason to review your estate plan. Legal changes could impact your estate plan from functioning as intended. A Forbes article: “Why Your Will May Be Out of Date”, discusses four recent events that may compel the review of an estate plan. If any of your estate planning predates any of these changes in law then it may be time for an update.
- April 14, 2003. This date is when compliance with the Health Insurance Portability and Accountability Act (HIPAA) was required. While the HIPAA law protects your privacy, it requires very specific wording in estate planning documents. For example, the executor in your durable power of attorney may need to speak with medical providers on your behalf. Without a HIPAA approved power of attorney, your agent may not be able to make medical decisions on your behalf.
- January 1, 2005. This date is when state inheritance and death taxes were applied on top of federal death taxes. Previously, they were offset by a federal credit which was phased on in 2004. Now 15 states have death taxes. Fortunately, Michigan does not impose its own inheritance taxes on top of the federal estate tax. However, those with an out of state will may need an update to compensate for changes in tax law.
- December 17, 2010. At this date, the federal estate tax exclusion increased to $5 million under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (that’s sure a mouthful). Many estate plans drafted before this date may be overly complicated as they were trying to avoid estate taxes. Many estate plans can be modified now that the exemption is so much higher.
- January 2, 2013. This date will affect married couples who have combined assets of over $5.43 million. The American Taxpayer Relief Act became law on this date and allows for portability election. Essentially, after the first spouse passes away, the deceased person’s exemption can be transferred to the surviving spouse. While this is a complicated type of estate planning, it is a valuable tool for those with large estates and many older estate plans do not provide for portability.