Is it Time to Update Your Estate Plan?

As a high-net-worth individual, you have worked hard to build and maintain your wealth, and it is crucial to have an estate plan that protects and transfers this wealth in accordance with your wishes. A well-crafted estate plan not only ensures that your loved ones are provided for but also minimizes the tax impact, helps preserve family harmony, and maintains your legacy.

However, many affluent individuals fall into the trap of thinking that they are set for life once they have an estate plan in place. This misconception can lead to significant issues down the road as life changes, tax laws evolve, and financial situations fluctuate. Regular updates to your estate plan are essential to ensure it remains relevant and effective. Regular reviews and updates can prevent your plan from becoming outdated and potentially failing to achieve your desired outcomes.

Why Regular Updates Are Crucial

An outdated estate plan can pose significant risks, such as potentially failing to leverage current tax opportunities or not reflecting changes in your financial or personal circumstances. Here are key reasons why regularly updating your estate plan is essential:

• Tax law changes: Tax laws are continually evolving, and older estate plans might not take full advantage of new opportunities for optimal asset transfer.
• Changes in wealth status: Significant changes in your financial situation can render your existing plan ineffective in addressing your current needs and future goals.
• Personal and family changes: Major life events such as marriages, divorces, births, or deaths can necessitate revisions to your estate plan to ensure it remains aligned with your wishes.

Components of Strong Estate Plans

Effective estate planning integrates technical expertise and a deep understanding of your personal goals and values.

Technical Expertise

Exceptional estate planning requires a thorough understanding of complex estate laws and advanced strategies. Here are two primary tools used in sophisticated estate planning:

• Trusts: Trusts are foundational in estate planning, allowing you to transfer assets to trustees for the benefit of your beneficiaries. They offer flexibility in how your wealth is managed and distributed and can also provide asset protection from creditors and plaintiffs.
• Partnerships: Various types of partnerships can help manage ownership issues and offer tax benefits. Sophisticated partnership structures can help business owners divide their companies efficiently and potentially reduce taxes.

The Human Element

The human element of estate planning focuses on ensuring your wealth is transferred according to your wishes, not just on minimizing taxes. This involves understanding your personal agenda and creating a plan that reflects your values and goals.

A genuinely exceptional estate plan results from an estate planner’s ability to blend technical strategies with a deep understanding of your unique situation. This means knowing your values, goals, and concerns and crafting a plan that aligns with these personal aspects.

Steps to Creating an Effective Estate Plan:

1. Start with the end in mind: Envision the outcomes you want. Consider scenarios such as your death, your spouse’s death, both of you dying simultaneously, or a family disaster. For each scenario, specify the desired distribution of assets and who will control them at various stages.
2. Determine your desired results: Share your envisioned outcomes with a competent estate planner. They can offer insights and help refine your goals, ensuring the plan aligns with your desired results.
3. Make a decision: Based on the input from your estate planner, choose a course of action that best achieves your goals.
4. Implement the plan: Once decisions are made, formalize the plan. This step is straightforward, as the groundwork—thinking through goals and possibilities—has already been completed.

Regularly Revisit Your Plan:

Your estate plan should be a living document, regularly reviewed and updated to reflect changes in laws, finances, and personal circumstances. Consider stress testing your plan to ensure it is still aligned with your goals and capable of delivering the desired outcomes. A stress test involves having your wealth manager review your plan and current situation to answer two critical questions:

Is the plan likely to deliver the outcomes you currently want?

Is the plan missing anything that can make it more effective or efficient?

Conclusion:

Estate planning should be a part of pursuing the outcomes you want in your financial life and the lives of the people you care about most. Moreover, your existing estate plan should be reexamined occasionally and revised if necessary to remain effective. Regularly updating your estate plan is essential to ensure that it continues to meet your goals, align with current laws, and reflect your changing financial and personal situations.

As wealth managers, our goal is to help our clients make smart decisions with their money so they can focus on what matters most to them—their business or career, their family, and the causes they care about deeply. By staying proactive and informed about your estate planning, you can make intelligent decisions that allow you to focus on what matters most in your life.

If you have any doubts about your current estate plan or want to stress test it, I invite you to call your attorney or contact your Modera advisor. Let’s work together to ensure your estate plan is as effective and as aligned with your goals as possible.