An estate plan is a comprehensive portfolio of your assets, prepared to maximize distribution to your selected heirs, carry out your healthcare directives, and minimize tax impacts and administrative fees paid through probate.
After working with an estate planning attorney to establish accounts and directives, signing the document isn’t the end of the process. An estate plan must be periodically reviewed and updated to protect your loved ones.
Is a Review Every Three to Five Years Enough?
Once initiated, an estate plan is an ongoing process. Legal changes, life events, and shifts in finances often necessitate revisions. Most Illinois estate planning attorneys recommend reviewing and updating your plan every three to five years.
When an Immediate Review is Called For
Changes in your personal circumstances can impact the effectiveness of your estate plan, such as:
- Marriage or Divorce. Failing to update your plan after a divorce could leave assets to an ex-spouse or allow them to remain in control of assets. Illinois law automatically revokes any provisions in a will for a former spouse, but trust designations stay in effect. In addition, stepchildren are not automatically included in inheritances from wills, especially when they are not legally adopted.
- New Children or Grandchildren. Adding a new family member is a critical time to adjust estate plans. If you’re the parent, it’s an opportunity to name a guardian for a minor child or create a trust that is managed for the child’s benefit until they reach adulthood. Illinois law does not automatically add new children or descendants to an estate plan unless the documents explicitly call for it.
- Death or Incapacity of a Family Member or Heir. If someone named in the estate plan dies, particularly if they had a role as executor, personal representative, or trustee, a substitute should be designated to avoid confusion during estate administration.
- Significant Changes in Assets. Starting a business, selling a major asset, or acquiring real estate can require adjustments to estate plans, such as for including the asset in an existing trust. Likewise, significant reductions in assets can put the entire estate under the state’s $4 million estate tax threshold, prompting changes.
The Critical Role of Beneficiary Designations
An often-neglected area of estate planning involves beneficiary designations on retirement accounts, life insurance policies, and bank accounts. These financial tools are legal contracts that supersede your will’s instructions. Payouts from these accounts go to designated beneficiaries directly, bypassing probate. Periodically reviewing beneficiary designations is crucial, as is choosing contingent beneficiaries where possible.
Tax Considerations Specific to Illinois
Certain estate planning issues affect Illinois residents more than those from other states. Consider:
- Estate taxes in Illinois are referred to as a “cliff,” meaning that estates valued above the $4 million threshold are taxed in full.
- Federal estate tax exemptions are portable but Illinois’s is not. Your spouse cannot apply your unused $4 million exemption to their estate when they die. This is why many Illinois residents use credit shelter trusts (bypass trusts) to minimize exposure to these taxes.
Powers of Attorney and Healthcare Directives
An appointed agent for power of attorney or a healthcare directive may pass away or move out of state, reducing their ability to perform the tasks at hand when necessary. Periodic reviews of these positions are key to closing any gaps.
When and How to Make Updates to Your Estate Plan
Don’t take shortcuts when updating an estate plan, because Illinois will not recognize informal amendments. The state does not allow unwitnessed, handwritten wills. All amendments must meet the same standards as the original document.
If you’re unsure whether your estate plan needs updating, contact the estate experts at Legacy & Life Law Firm, who will ensure that updated plans eliminate confusion and legal conflicts. Call for a consultation today.