When Should You Update Your Kentucky Estate Plans?

You can have perfect plans drafted by an estate planning lawyer.

Nonetheless, in time, those plans will likely need to be revisited due to changes in circumstances.

Here are nine situations to look out for which might mean it’s time to do so.

Marriage

The law extends certain unique rights and obligations to spouses.

These range from presumptions as to who owns what, which is informed by community vs. separate property state law issues, to mandatory spousal shares (you can’t disinherit a spouse) to who is empowered to make health care decisions or is presumed to be the right choice for court-appointed fiduciary status.

Additionally, entering into marital bliss is likely to have asset protection and tax planning opportunities, or, at least, ramifications of which one should be aware. Needless to say, it is wise to review all of this, and the interactions thereof, before tying the knot. As always, early planning is the name of the game.

Also, of note, additional considerations arise for blended families.

Children

The second event is if you become a parent, particularly if this will be your first child. And, upfront, everything here applies to adoption situations.

Simply put, default intestate laws will see children inheriting in one lump sum upon turning 18. That’s rarely optimal. And, before that time, without planning, a court will decide who should be the guardian of minor children if the parents die.

Why is it more important to review estate plans with a first child?

Well, with basic estate plans we typically plan for children collectively, and thus plans are less likely to need revision when the number of children changes.

But, later events, such as a child proving themselves a spendthrift or developing a special need, can prompt the need for more nuanced planning concerning each child.

Civil Divorce

The third event is the contemplation of divorce. While most state laws provide that an ex-spouse can no longer inherit, this may not apply until the divorce is at some level of finality.

Further, an inheritance left to minor children may be entrusted to the ex-spouse to manage on behalf of the child.

This is often not desired.

Other issues exist due to documents that themselves contemplate joint planning. These should all be reviewed and replaced with new documents.

Children Get Married

It is my impression that not all parents approve of their children’s marital unions. And, if this is so — and, maybe even if not — you may wish to revise your estate plans.

Why is this?

Well, an inheritance might become marital property, and, even if not, it is may still in part go to a future ex-son or daughter-in-law.

Here, a more general lesson is as follows. We can provide an inheritance to someone in two ways. The first provides little or no asset protection. Alternatively, the second way will protect that inheritance from various creditors, including future ex-spouses of our beneficiaries.

My recommendation? Choose the latter.

Change in Status of Beneficiary

Fifth, we should be alert for possible changes in the status of our named beneficiaries. There are countless scenarios here, but let’s talk about two.

A would-be beneficiary proves themselves a spendthrift. That is, they make poor financial decisions. In this case, it may be appropriate to handle their inheritance differently than other beneficiaries, which can be done in a way that the beneficiaries are not so informed. A related possibility could be if a would-be beneficiary develops a substance dependency.

The second example scenario is if a would-be beneficiary develops a special need. Several issues. For instance, it may be important to structure an inheritance in a way to not preclude the beneficiary from government assistance.

Legislation

This will probably be in the tax arena, which is often subject to the political winds of the day.

A timely example – the Tax Cuts and Jobs Act doubled the unified credit against estate and gift taxes, but will sunset in 2025. For some individuals, this suggests an acceleration of gift making to minimize transfer taxes down the road.

Interstate Moves

The seventh event is an interstate move. Some states impose estate and inheritance taxes, while others do not, and these state transfer taxes typically apply to far more people than the federal transfer taxes.

Further, this will help prove a change in residence, which might be helpful if it turns out that your move had beneficial income tax consequences.

Change in Fiduciaries

The eighth event pertains to chosen fiduciaries – trustees, personal representatives, and agents. First, and most obvious, if you have a falling out with someone, it should be clear that the fiduciary designation should be changed.

However, such a change need not be due to a decrease in the quality of your relationship with the fiduciary. For instance, a parent, when relatively young, might have been a good choice, but have they aged substantially?

Change in Business Interests

The ninth event is a change in business interests. This could be new partners, or fewer partners, or a new business, or the sale of a business.

A not up-to-date or otherwise poor business succession plan can not only be time-consuming and financially expensive, but it could also tank a thriving business that was someone’s life work and planned upon legacy.

So, be smart here. At the very least, any business with multiple members should strongly, strongly consider a buy-sell agreement. Trust me, I have personal experience here. As they say – hope for the best, but plan for the worst.

Further, intelligent business succession planning through estate freezes and other long-term strategies can result in substantial estate tax savings. There can be asset protection benefits here too.