How Often Should You Review Your Estate Plan?

 by James G. Heltzel

Fall 2000

Absent a major change in circumstances, you should review your estate plan at least every five years. Even if there are no significant changes in your personal or financial situation, you should completely revise your documents every ten years. There will be enough changes in your personal situation, the law, and our forms to justify a major revision.

What about those events which turn your life upside down--a divorce, a remarriage, the death of a spouse or a child or a substantial increase or decrease in your wealth? As explained below, those events may require more frequent revision.

1. Divorce.

A. Wills:

Divorce revokes those provisions in a will in favor of the former spouse. The former spouse is treated as if he or she had predeceased the other. If only a will is involved, no change may be necessary. However, it should be reviewed with a lawyer.

B. Revocable Trusts:

Many estate plans use revocable trusts as will substitutes. Unfortunately, in Oregon , the statutory law of wills typically does not apply to trusts. Consequently, a divorce will not automatically revoke gifts in favor of a former spouse. Without an amendment to the trust, a former spouse may end up receiving a gift or acting as successor-trustee.

C. Life insurance, retirement plans and annuities:

Proceeds from these assets pass according to a beneficiary designation form. Beneficiaries are also limited by the terms of the policy or plan. Except for a qualified retirement plan (which requires that a spouse receive at least part of the proceeds, unless the spouse waives the requirement), a divorce usually will not affect existing beneficiary designation forms. In other words, if a former spouse is named as a beneficiary, he or she will probably receive the proceeds, even in the event of remarriage. For that reason, it is mandatory to review beneficiary designation forms in the event of a divorce.

2. Marriage or remarriage.

A. Wills:

With two exceptions, marriage revokes a will. That means that as soon as you say "I do", you no longer have a will and your assets will pass according to statute. The exceptions: If you execute a will in contemplation of the marriage, it may survive the marriage. Also, if you enter into a prenuptial agreement which provides that a new spouse will have no rights in your estate, marriage will not revoke your existing will.

B. Revocable Living Trusts:

Because Oregon law governing wills does not affect revocable trusts, marriage, like divorce, will not alter trust provisions. Prior to a marriage, you should review your revocable trust to determine if changes are appropriate.

C. Life insurance, retirement plans and annuities:

Marriage may have the same result as a divorce. In many cases, the fact of marriage will not change the effect of existing beneficiary designation forms. Review them before the ceremony.

3. Births and deaths.

A. Wills:

Assets given to a person who is related to you by blood or adoption will pass to that person's lineal descendants, if the person predeceases you. Most wills so provide, but Oregon law creates the same result even if the will is silent.

If you make a gift to your children and an additional child is then born, the will may provide for the afterborn child. Even if it does not, Oregon law will provide that the afterborn child will share with his or her siblings.

B. Revocable Living Trusts:

Revocable living trusts commonly provide for the contingencies described above. If a trust does not, however, there is no Oregon law to fill the gap. Consequently, a gift to a person who predeceases you will pass to his or her estate, unless there is a specific alternative gift in the trust. Similarly, if an afterborn child is not included through appropriate contingency gifts, the child will receive nothing.

4. Changes in Wealth:

Increases in wealth can create estate planning problems. If the total value of your estate (including life insurance, retirement plans and all of your other assets) exceeds $675,000, your estate may be subject to estate tax, and you should consider consulting an estate planning attorney. The exemption limit will increase to $1,000,000 by 2006 and may increase more rapidly through changes in law.

Aside from tax issues, changes in wealth can distort estate plans. For example, if you have an estate of $500,000 and your will provides for a gift of $100,000 to your favorite charity with the balance passing to your two children, each child will receive $200,000. If your estate declines to $300,000, the charity will still receive $100,000, but each of your children will receive only $100,000. Is this what you intended? Similar consequences can also flow when different pieces of property are given to specific children. An estate plan that was "fair" upon creation can become "unfair" if values change.

Do you have to remember all of these rules to be a responsible spouse or parent? Certainly not, but, particularly in the event of a death, divorce or remarriage, be sure to review your estate plan. In any event, it is a good idea to review your estate plan every five years. It is a little like the 60,000 mile service for your car. If you skip it, everything may work out all right, but, on the other hand, your timing belt may break just as you are reaching the top of Santiam Pass.