Although there is no hard and fast rule on how often you should update your trust, conducting an annual review of the trust and asset schedule is recommended. Circumstances will inevitably change. There will always be changes in the law – especially the tax laws. There are also going to be changes in your family situation or the make-up of your assets over time.
The Federal Estate Tax Exemption has changed more than a half dozen times over the last fifteen years. Currently it is $11,180,000 per person. The marital clause in your trust or your parents’ trust may have been the most appropriate clause at the time it was drafted ten or fifteen years ago. However, today it may cause a lot of unnecessary capital gains taxes when the assets pass to your children (or to you when both of your parents pass in the case of your parents’ trust).
Further, the needs of your beneficiaries will more than likely change over time as well. For example, we often review trusts that have language that says when a child inherits, they can access 25% at age 21, 50% at age 25 and the balance at age 30. This was a popular way to drafting in the 1990s and into the 2000s. However, the state of the art in estate planning now -that more progressive attorneys use- is to protect children from divorcing spouses, creditors, predators and bankruptcy claims with cascading trust provisions. In the trusts where the balance is available in an outright distribution at age 30, there is no protection for a child should they go through a bad divorce, get sued, go through a bankruptcy or have some other serious creditor issue.
Asset alignment can also be a situation where the wheels can come off the proverbial estate planning bus. A change in the make up of the assets is something that happens almost universally to all our clients every couple of years. The issue that this brings in the estate planning context is that the assets are often not properly funded to the trust or aligned with the estate plan. This is why it makes sense to be meeting with your estate attorney on a regular basis in order to ensure all of your assets are properly funded or coordinated in your estate plan. The asset schedule at the back of your trust also requires a short formal amendment when those assets change.
Being proactive is worth its weight in gold and will ensure the plan works as planned down the road. Make sure to make course corrections as you go to protect yourself, your spouse and your children or other family members. No one wants court interference, extra taxes or a train wreck for their family to deal with in the future.
If you suspect you may need an update to your estate plan or funding of your assets to your trust, give me a call and I can put you in contact with low-cost legal solutions.