When Is the Right Time to Create My Estate Plan?

JGB July 2024 Newsletter

Creating an estate plan is crucial in securing your financial future and ensuring your assets are distributed according to your wishes. Many people delay this important task, often due to misconceptions about when and why an estate plan is necessary. In this guide, we’ll explore the ideal timing for creating an estate plan, highlight key considerations, and address common questions related to estate planning.

Estate planning is not just for the wealthy or the elderly but is essential to every responsible adult’s life plan. While some tend to overlook the need for estate planning, it is a comprehensive approach to managing your assets and health care decisions at the inevitable occurrence of incapacity and death. Key components will often include a last will and testament, financial durable power of attorney, health care directive, and/or a trust. Without an estate plan, your assets could be distributed according to state intestacy laws rather than following your personal wishes. This could lead to family disputes and financial complications, which are all too common when estate planning is neglected.

We will now evaluate the most common events and critical life stages when creating or updating an estate plan becomes particularly important:

Early Adulthood

Once you reach the age of 18, you are legally an adult and should consider basic estate planning. This includes:

Durable Power of Attorney: This document designates someone to manage your financial affairs if you become incapacitated. Updating a financial power of attorney every five years is recommended to avoid difficulty with financial institutions accepting the document.
Health Care Directive: The directive is often a combination of a HIPAA release (which allows your proxy to access your medical information), a health care power of attorney, and a living will. The combination of documents helps outline your medical preferences and appoint a healthcare proxy.

Many of my clients have encouraged their adult children to establish basic estate planning documents to safeguard their future. Some parents have taken the initiative to cover the legal costs of these essential documents. Without these basic legal documents, family members can be left powerless in critical situations, often leading to court proceedings as a last resort.

Marriage

Getting married is a significant life event that warrants an update to your estate plan. Considerations include:

Updating Beneficiaries: Ensure your spouse is listed as a beneficiary on life insurance policies and retirement accounts.
Joint Ownership: Review jointly held property and accounts to streamline the transfer process.
Updating Existing Documents: Parents or other family members may have been named as beneficiaries, executors, trustees, or primary agents in previous estate planning documents.

Parenthood

When you have children, estate planning becomes even more critical to ensure your children are provided for:

Guardianship: Designating guardians for your minor children ensures they are cared for by trusted individuals of your choosing. Failure to designate such a guardian can result in increased family upheaval and uncertainty for your minor children. Guardians are typically nominated in the will of the deceased parent.

Control of Assets for Beneficiaries:

Last Will and Testament: Establishing a will allows you to identify asset distribution details at your death. If a beneficiary is under the age of 18 or cannot make prudent financial decisions, you can leave directions in your will to create a testamentary trust at your death. A testamentary trust authorizes a chosen trustee to oversee the management and distribution of your assets to your beneficiary. Unfortunately, using a will to create a testamentary trust often leaves significant paperwork and accounting to be completed by your trustee after your death. The process is initiated by the trustee qualifying with the Clerk of the Circuit Court and is overseen by the Commissioner of Accounts.
Revocable Trusts: Converse to the inefficient use of a will to create a testamentary trust, establishing a revocable trust increases efficiency, reduces administrative costs, and can avoid the Commissioner of Accounts’ scrutiny. A revocable trust still appoints a trustee to oversee the management and disbursement of funds for beneficiaries, just without the delay and headaches commonly associated with the probate process.

Beneficiary Protection

Beneficiaries who are unable to manage their affairs, suffer from addiction, or receive needs-based government assistance can prompt an urgent need to revisit your estate plan:

Age of Majority: Either testamentary trusts or revocable trusts can establish an age at which an individual beneficiary takes over making decisions regarding assets left for their benefit. These ages typically range between 25 and 35, but it is not uncommon to see higher ages when the circumstances direct for greater control and protection.
Addiction: A Trustee will often be appointed to oversee the management of funds on behalf of a beneficiary with addictive tendencies. Age is not always a relevant factor when addressing addiction concerns. Trustees can be provided the sole discretion as to when they relinquish control to a beneficiary. Prior to passing control to a beneficiary, it is common for the trustee to require specific durations of sobriety or completion of addiction treatment programs.
Needs-Based Government Assistance: A beneficiary receiving government assistance such as Medicaid should not own or control assets above a certain financial threshold to ensure they maintain their benefits. If a beneficiary were to receive an inheritance over that financial threshold (which varies depending on the benefit and locale of the recipient), they would likely be disqualified and lose their current benefits. Trusts can be utilized to improve a beneficiary’s quality of life by ensuring continued government benefits and the availability of additional trust funds subject to a trustee's discretion.

Divorce or Remarriage

Major changes in your marital status should prompt a review of your estate plan:

Revise Documents: Update your will, trust, and beneficiary designations to reflect your new circumstances.
Consider New Dependents: If you remarry or have stepchildren, consider including them in your estate plan. Wills and trusts commonly stipulate that assets pass to children or grandchildren by bloodline descendency (commonly referred to as per stirpes). Stepchildren are often excluded from the definition of bloodline descendency, resulting in their disinheritance without revisions to the estate planning documents.
Premarital Agreement: Joining finances can be a significant undertaking for newly married couples. Often, those with blended families will elect to use a premarital agreement to outline individual asset ownership and to set rules for the treatment of future acquired marital assets. When a premarital agreement is combined with robust estate planning (typically a revocable trust), the interests of the decedent’s separate children and their spouse can be adequately addressed.

Significant Financial Changes

Substantial changes in your financial situation, such as inheriting money, buying a home, or starting a business, require an updated estate plan:

Asset Allocation: Reassess how your assets are distributed to ensure your estate plan aligns with your current financial status.
Estate Taxes: Strategize to minimize estate taxes and maximize the inheritance for your beneficiaries.
Trust Funding: As additional assets accumulate, you must ensure that your current and newly acquired assets are properly coordinated with your trust. Assets either titled in the trust's name or properly designated to the trust through beneficiary designation can avoid the time-consuming and expensive probate process.

Health Changes

Serious illness or disability can prompt an urgent need to revisit your estate plan:

HealthCare Directive: Ensure your healthcare preferences are clearly documented.
Living Will: End-of-life decisions should be adequately discussed with decision-makers well in advance of a medical event necessitating the removal of life-prolonging procedures or implementing a do-not-resuscitate order.
Long-Term Care Planning: Consider financial arrangements for long-term care needs.

Common Misconceptions About Estate Planning

Many people delay estate planning due to misconceptions. Here are a few myths debunked:

“I’m too young to need an estate plan.” Estate planning is for adults of all ages. Unexpected events can occur at any time. The best time to create an estate plan is when you can do so.
“I don’t have enough assets to require an estate plan.” Even modest estates need planning to avoid probate and ensure your wishes are honored.
“My family will handle everything.” Without an estate plan, your family may face legal challenges and disputes that could have been avoided.

The Role of an Estate Planning Attorney in Richmond, Virginia

Working with a local estate planning attorney can provide numerous benefits:

Local Expertise: An attorney familiar with Virginia estate laws can ensure your plan complies with state regulations.
Personalized Service: A local attorney can offer personalized advice tailored to your unique circumstances and goals.
Peace of Mind: Professional guidance ensures that your estate plan is comprehensive and up-to-date.

Choosing the Right Estate Planning Attorney

When selecting an estate planning attorney in Richmond, Virginia, consider the following:

Experience: Look for an attorney with extensive estate planning experience and a record of satisfied clients.
Reputation: Read reviews and ask for referrals to find a reputable attorney.
Compatibility: Choose an attorney who understands your needs and with whom you feel comfortable discussing personal matters.
Continuity: Ensure that your estate attorney has a plan to provide for your ongoing legal needs. All too often, solo practitioner attorneys retire, become disabled, or die, leaving their clients (or client’s loved ones) without proper legal counsel.

Updating Your Estate Plan

An estate plan is not a one-time task. Regular updates are crucial to ensure it remains relevant:

Review Annually: Schedule an annual review to account for any changes in your personal or financial situation.
Major Life Events: Update your estate plan promptly after significant life changes such as marriage, divorce, the birth of a child, or the death of a beneficiary.
Legislative Changes: Stay informed about changes in estate laws that could impact your plan.

Creating an estate plan is vital in securing your future and protecting your loved ones. Whether you’re a young adult just starting out, a parent, a retiree, or anyone in between, having a well-thought-out estate plan is essential. By understanding the right times to create and update your estate plan and by seeking the assistance of a knowledgeable estate planning attorney in Richmond, Virginia, you can ensure that your wishes are honored and your assets are distributed according to your desires. Don’t wait—start your estate planning journey today to gain peace of mind and protect your legacy.

If you’re ready to create or update your estate plan, contact the attorneys at Johnson, Gasink & Baxter, LLP today. Taking this step will provide you with the security and peace of mind you deserve.

About the Author: Spencer specializes in Estate Planning & Administration: Wills, Trusts, Probate Administration, Trust Administration and Asset Protection. He additionally assists clients in the field of Business Law. Spencer works with his partners and staff at Johnson, Gasink & Baxter, LLP, to protect his clients, their family, their businesses, and their wealth. He enjoys speaking as an estate planning expert and is a continuing education instructor on related topics. The firm has multiple offices, but Spencer spends a good bit of his time in the Richmond area. Spencer is originally from Maryland and came to Virginia to attend Randolph-Macon College. At Randolph-Macon, he majored in political science, minored in literature, and played football for the school. Spencer resides in Hanover County with his wife Courtney, their two children, and and their Yellow Lab, Finn. Outside work, his hobbies include fishing, boating, camping, snowboarding, sporting clays, as well as anything else that can keep him outdoors.