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Your Estate Plan Isn’t a Crockpot: You Can’t Just Set It and Forget It

Some of the most common life events can dramatically impact your estate plan. This includes the birth of a child, the birth of a grandchild, the death of a family member, purchasing a home, marriage, and divorce. If you fail to update your estate plan, you and your loved ones may be up for an unpleasant surprise when it’s time to put your plan into action.

Let’s look at each of these events and the impact they may have on your plan.

Birth of a Child

You might already have your estate plan prepared at the time of your child’s birth. However, depending on what provisions are in the first iteration, a second child might have difficulty getting their share without court involvement if you don’t revise your plan after the birth of a subsequent child.

Example: Fifteen years ago, Jim and Brenda had a son named Trevor, which prompted them to have a revocable living trust prepared, outlining how the trust’s money and property were to be managed for Trevor’s benefit. Five years later, Jim and Brenda had a second son, Matthew. Months after Matthew’s birth, Jim and Brenda both passed away in a car crash. However, the couple had not revisited their estate plan after Matthew’s birth, so he is not mentioned anywhere in their trust. For Matthew to receive any benefit from her parent’s money and property, someone will need to petition the probate court to sort out the situation. This process can be time-consuming, costly, and public, and the exact opposite of the outcome Jim and Brenda wanted when they created a revocable living trust to begin with.

Birth of a Grandchild

Many grandparents want to support their grandchildren in any way they can. But depending on the family structure, a grandchild who has been left out of an estate plan may have no recourse and may miss out on the opportunities the grandparents may otherwise have intended their grandchildren to have.

Example: Ned and Gina had two children, Austin and Logan. In 2020, Ned and Gina met with their estate planning attorney to create an estate plan. Because they strongly believed in the value of higher education, they created subtrusts for their two grandchildren, Austin’s daughters, Sofia and Carmen, to help offset the cost of their future tuition. In 2021, Logan welcomed a son, Mark. Unfortunately, Ned and Gina passed away shortly thereafter. Although updating their trust was on their to-do list, they never got around to it. Therefore, when Ned and Gina passed, Sofia and Carmen were the only grandchildren to receive money for their education, leaving Mark to find alternate avenues for funding his education.

Death of a Family Member

There are a handful of people involved in creating a will or trust:

  • Those creating the estate planning documents (will-maker or trust maker, respectively).

  • Those who receive a benefit from the estate planning document (beneficiaries)

  • Those who are in charge of carrying out the document’s instructions (personal representative, executor, or successor trustee).

Aside from the will or trust maker, the death of any of these individuals can greatly impact the estate plan. A beneficiary’s death may mean that others receive a larger share or that the deceased beneficiary’s descendants receive that share. Reviewing your estate plan to make sure that your wishes will still be carried out is important, even if your first-named beneficiary is no longer living.

Example: Hayley is a single woman and left her modest amount of money and property to her mother, her only living parent, in her will. Eight years later, both Hayley and her mother passed away in a freak accident skydiving in Hawaii. Because Hayley named no contingent beneficiary in her estate plan, the probate judge must look to the state inheritance law, which gives everything to her only living sibling, her estranged brother, Tommy, whom she has not seen for fifteen years.

In addition, you must select backups for your personal representative, executor, or successor trustee in case the first person you named passes away (even if it’s before you). If you named no alternate, or not enough alternates, then depending on your estate plan’s terms, your loved ones may be able to pick the successor person or a judge may have to look to state law to determine whom to appoint as the new person in charge. For families who are prone to conflict, this type of situation could spell disaster.

Example: Rick named his wife, Kelly, as the successor trustee of his revocable living trust. Under the wise guidance of his estate planning attorney, Rick named his sister, Jane; his son, Tyler; and his best friend, Josh, as additional successor trustees. Six years later, Rick, Kelly, and Jane passed away while visiting Rick’s father. Because Rick had named backup successor trustees, his trust’s administration continued smoothly under Jason’s direction, preserving Rick and Kelly’s nest egg and keeping nosy relatives and neighbors from learning their financial details.

Purchasing a New Home

Purchasing a new home can dramatically impact a trust-based estate plan. Typically, for this type of plan to work as intended, either all accounts and property need to be owned by the trust, or the trust needs to be named as the beneficiary. Usually, when you create the trust, you prepare a deed transferring your home to it, making it easy to ensure that the trust owns your home (if your estate planning attorney recommends that strategy). However, if you decide years later to buy a new or second home, you need to remember to fund your new real estate into your trust to avoid probate. When you purchase real estate, most title companies will assume that you are doing so as an individual or, if you are married, as a married couple. If you want the home to be purchased in the trust’s name, you will need to notify the title company or follow up with your estate planning attorney after the transaction has closed to transfer the new property into the trust.

If you don’t transfer the property to your trust, then upon your death, it will go either to the surviving owner (if owned as joint tenancy with rights of survivorship or tenancy by the entirety) or through probate if you owned it individually or as a tenant-in-common.

Example: Roy had a revocable living trust that he established in 2000. When he signed the trust, he also signed a deed transferring his home to the trust. In 2018, he purchased a vacation home on the Gulf of Mexico shore. However, he forgot his estate planning attorney’s wise advice and had the vacation home deeded to himself as an individual. In 2020, Roy passed away as a resident of North Dakota. Because Roy’s vacation property is located in a state other than the one in which he resided at the time of his death, Roy’s loved ones must open two probate proceedings to transfer the property (one in North Dakota and one in the state where the property is located). This process will probably be very time-consuming and expensive for Roy’s family, even though he had a revocable living trust.

Marriage

Marriage is both an exciting and sometimes complicated process. You may have your own money and property and, over the coming years, will probably accumulate money and property jointly with your spouse. Keeping straight which property is separate and which is joint, outlining your wishes for what you want to leave to your spouse, and deciding what decision-making authority you want your spouse to have in the event you are unable to make your own decisions are all crucial elements that an estate plan should cover. If you don’t update your estate plan after your marriage, a court may have to be involved for your spouse to be able to make decisions for you and receive what you want them to have.

Example: In 2002, Carlisle met with an estate planning attorney to complete his estate plan, including a last will and testament, a financial power of attorney, and a medical power of attorney. Being single, Carlisle named his sister Alice as his trusted decision-maker under each of these documents. In 2004, Carlise married Bella. On their honeymoon in Hawaii, Carlisle fell off a balcony and became comatose. Bella contacted Carlisle’s medical insurance to work out the details for his treatment but was denied access to the information because she was not listed as Carlisle’s agent under a financial or medical power of attorney. Although Carlisle would have wanted Bella to have the authority to make his financial and medical decisions, she has little power to do anything, without involving a court, because he never specifically gave her that authority in valid legal documents.

Divorce

It’s normal and expected for married couples to name each other as their trusted decision-makers in their estate plans (e.g., as executor, personal representative, trustee, and agent under financial and medical powers of attorney). It’s also likely that you named your spouse as a beneficiary of some of your money and property. However, if you and your spouse divorce, chances are your wishes will change. State law varies as to the effect of a divorce on a person’s estate planning. To avoid complicating matters, it’s best to update your documents so there is no question as to your intent. Because of the varying treatment under the law, you must meet with an estate planning attorney after your divorce has been finalized to replace your trusted decision-makers and name new beneficiaries. The last thing you want is to give your ex-spouse a reason to be involved in your estate plan, even if they will receive nothing.

You’ve already taken a crucial step in having an intentional estate plan prepared, instead of allowing the state’s default rules to make the decisions. However, estate planning isn’t a one-and-done event. Your plan is a set of living, breathing documents that can be impacted by many common life events. If you or your loved ones have experienced any of the above events recently (or since you last updated your estate plan), now is the time to call us to schedule a review of your documents. Don’t wait until it’s too late. The outcome may lead to disaster for those you care about. Call us today: Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area at (925) 831-4840.

You might also be interested in:

Why It’s So Important For Your Family to Have an Estate Plan

The Importance of Including a Statement of Intent or Purpose in Your Estate Planning Documents

Estate Planning Questions to Consider for Couples With an Age Gap

Here's How Divorce and Remarriage Can Affect Your Estate Plan

The Importance of Reviewing Your Accounts and Property When a Loved One Passes Away

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