Most people create an estate plan and then ignore it for years. But you wouldn’t drive a car off the dealership lot and then never change the oil or replace the tires, would you?
The same is true for an estate plan. It needs periodic maintenance too—especially after major life events like a birth, death, marriage, or divorce.
Below are three common problems that tend to crop up when a person doesn’t review their will, trusts, powers of attorney, and other estate-planning documents every now and again.
1. Designating a fiduciary who no longer makes sense
Why is it important to get the fiduciary right? Because the person you pick as fiduciary will have the legal right to make key decisions about your health and finances. For example, if you fall into a coma or suffer dementia, a fiduciary listed in a health care power of attorney will have the right to make medical decisions for you while your agent under a financial POA may control your bank accounts and even have the right to sell your land.
And that’s just the fiduciaries with the right to step in during your life. Afterward, there’s another batch of fiduciaries. For instance, if you created a trust (thus bypassing the court-supervised probate process), then a fiduciary known as a trustee will distribute your stuff according to the trust document. Or if you did not have a trust (either because you selected a will or did not bother with any estate planning), then your stuff will need to go through probate. For the six months to several years this process lasts, your stuff (i.e., your estate) will be managed by a fiduciary known as either an administrator or an executor.
In all of those cases, your fiduciary is legally obligated to act in your best interest. But experiences vary and someone who may have been a good fit for the role when you created your estate plan may no longer be so 10 years later whether because of age, a move, a deterioration in your relationship, or something else.
2. The kids have grown up
When you have underage kids, you have one set of estate-planning decisions to make. When they become adults, you have a different set of decisions to make.
For underage kids, the major question is who should be guardian if both parents pass away unexpectedly. For people with trusts, the other issue is how to distribute trust assets, with the answer usually being something like distributing the assets in several chunks such as a third at age 25, another third at 30, and the rest at 35.
For adult kids, the relevant questions tend to morph into: Are they financially responsible? What if they get divorced? And what’s the best way for me to pass my assets to them?
If your kid is lousy with money or not ready to handle receiving a bunch of money at once, you may want to impose some safety nets to reduce the potential damage. For example, to use the 25-30-35 scenario just discussed, if your kid receives a third of the money when they are 25 and they waste it, they’ll have extra chances to do better at 30 and again at 35.
If your kid is in a rocky marriage, you may not want your kid to inherit everything at once because while the inheritance will initially just go to your kid, those assets will likely get commingled into the marital finances. When that happens, it will become fair game in a divorce.
And if your kid operates a business, rents out property, or does something that might put them at higher risk of being sued, you may not want them to get all of their inheritance at once either. That’s because the money would become accessible to your kid’s creditors. By contrast, if you keep the money in a trust, and give the trustee proper instructions, that inheritance is much more likely to wind up with your kid rather than their creditors.
3. Not addressing HIPAA
HIPAA stands for the Health Insurance Portability and Accountability Act, a 1996 law that created national standards for protecting the confidentiality of your medical records and personal health information. As part of that, HIPAA established serious fines if your health care provider gives out that information improperly.
The upshot is that your estate-planning documents need to address HIPAA. Otherwise your health care provider will not freely share the information with the correct people. And that, in turn, will delay or impede health care decisions at critical moments.
This issue can be solved through a standalone document known as a HIPAA Waiver, which says that your designated agent can view your medical records. Or it can be handled by including a HIPAA waiver in your living will, advanced health directive, and medical power of attorney.
This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.