Episode Summary: "When To Update An Estate Plan"

The Practical Planner: A podcast for advisors about delivering more effective estate planning
Hosts: Thomas Kopelman and Ann Rhodes
Release Date: January 9, 2024

Introduction

In the episode titled "When To Update An Estate Plan," hosts Thomas Kopelman and Ann Rhodes explore the critical moments in a client's life that necessitate revisiting and revising their estate plans. Recognizing that many individuals create estate plans but fail to keep them updated, the hosts provide actionable insights for financial advisors to ensure their clients' estate plans remain relevant and effective.

The Importance of Regularly Updating Estate Plans

Thomas Kopelman opens the discussion by highlighting a common issue among clients: while many set up wills and trusts initially, they seldom review or update them to reflect changing life circumstances.

"Even though they get it done, it's not necessarily reflective of their true life now." – Thomas Kopelman [00:27]

Ann Rhodes concurs, emphasizing the need for a consistent review schedule to maintain the estate plan's relevance.

"We used to say you should really look at your estate plan every two years and think about at least updating it, like, for real, like, redoing the thing every five years." – Ann Rhodes [01:28]

Establishing a Review Cadence

Thomas discusses their approach at Allstreet Wealth, where they alternate between insurance reviews and estate planning reviews every other year. This structured cadence ensures that clients' estate plans are systematically revisited without overwhelming them.

"Every other year, we do insurances. Every other year, we do the estate planning." – Thomas Kopelman [01:54]

Ann adds that it's crucial not only to review the core estate planning documents but also the beneficiary designations, which are often overlooked but equally important.

"Don't forget not only to review the estate planning documents [...] but actually also beneficiary designations." – Ann Rhodes [02:12]

Key Life Events Triggering Estate Plan Updates

The hosts identify several significant life events that should prompt clients to update their estate plans:

1. Changes in Marital Status

Marriage, separation, or divorce can fundamentally alter the structure and intentions of an estate plan. Marital status changes affect how assets are distributed, especially concerning the spouse's legal rights.

"Spouses tend to have default rights over that client's assets if the client passes away under law." – Ann Rhodes [04:16]

Ann explains how different states handle spousal rights, using Georgia and New York as examples.

"In Georgia, the least amount of rights for a surviving spouse... In New York, they have an elective share." – Ann Rhodes [05:33]

2. Parenthood

Having children introduces new responsibilities and necessitates considerations like guardianship and setting up trusts to manage assets for minors.

"If something happened to you, like, the court would decide who takes care of your kids." – Thomas Kopelman [06:04]

Ann outlines three critical aspects when clients have young children:

1. Naming a Guardian: Including backup guardians to ensure continuity in care.
2. Establishing a Sub-Trust: Creating irrevocable trusts to manage financial assets for children.
3. Updating Beneficiary Designations: Ensuring retirement accounts and other assets properly name the child as a beneficiary.

"We have clients just have spouse. [...] you don't want to go morbid. But like some..." – Thomas Kopelman [03:44]

3. Relocation Across States or International Moves

Moving to a different state or country can significantly impact the estate plan due to varying laws, such as community property versus common law states.

"Certain features that are different about the state regarding default rights of your spouse." – Ann Rhodes [09:24]

Ann provides a detailed comparison between community property states like California, Texas, and Washington, and common law states like New York, illustrating how asset distribution can vary dramatically based on jurisdiction.

"Community property is like this old school way... both of you need to control the asset together." – Ann Rhodes [11:43]

4. Significant Changes in Net Worth

Both substantial increases (e.g., winning a lottery, liquidity events) and decreases (e.g., bankruptcy, large creditor judgments) necessitate adjustments to the estate plan to reflect the new financial reality.

"If someone's net worth has really undergone a significant change, then you want to think about doing the sub trusts." – Ann Rhodes [19:45]

Thomas shares experiences with clients whose business valuations have skyrocketed, necessitating comprehensive updates to their wills and trusts.

"Your will that you got put in place a couple of years ago probably needs add in a few changes." – Ann Kopelman [20:06]

5. Business Changes

Starting a new business or significant changes in an existing one require updates to estate plans to include succession planning and coordination with business legal documents.

"Succession plan for your business... that need to be coordinated with your estate plan." – Ann Rhodes [22:18]

Detailed Insights: Community Property vs. Common Law States

Ann Rhodes provides an in-depth explanation of the differences between community property and common law states, using practical examples to illustrate how these distinctions affect estate planning.

"If I die, half of my wealth stock will go through my will or my trust, but the other half actually ends up in his hands." – Ann Rhodes [13:22]

Thomas adds clarity by contrasting this with how assets would be handled in a common law state like New York.

"Because New York is not a community poverty state... Ann's will gets to determine where that goes." – Ann Rhodes [13:54]

Beneficiary Designations and Trusts

The conversation underscores the importance of accurate beneficiary designations, especially when clients have children. Common oversights include failing to update beneficiaries after the birth of a child or neglecting to name contingent beneficiaries.

"75% of our clients not have a contingent beneficiary on any of them." – Thomas Kopelman [03:44]

Ann suggests that as children mature, trusts may become less necessary, and outright inheritance might become more tax-efficient.

"As your child ages... changing the retirement account designations to remove trusts and put the kid in their own names is a good idea." – Ann Rhodes [18:32]

Practical Advice for Financial Advisors

Thomas and Ann emphasize the proactive role financial advisors should play in initiating estate plan reviews. Utilizing financial planning software and regular client meetings can help advisors identify when updates are needed without relying solely on clients to bring up changes.

"Is this still the way that you want? And I think that's actually a really interesting point that I don't think about often." – Thomas Kopelman [15:51]

Ann highlights the importance of reading between the lines during reviews to detect subtle life changes that may impact the estate plan.

"You do not need to ask that question specifically, can pick up on some of those cues from your client that like, things have changed in their life." – Ann Rhodes [15:51]

Conclusion

The episode "When To Update An Estate Plan" serves as a comprehensive guide for financial advisors, emphasizing the necessity of regularly revisiting clients' estate plans in response to life’s evolving milestones. By understanding and identifying key triggers—such as changes in marital status, parenthood, relocation, significant financial shifts, business changes, and alterations in personal relationships—advisors can ensure that their clients' estate plans remain robust and aligned with their current needs. Thomas Kopelman and Ann Rhodes provide valuable strategies and practical advice, empowering advisors to facilitate meaningful and timely estate plan updates for their clients.

Notable Quotes with Timestamps

• Thomas Kopelman [00:27]: "Even though they get it done, it's not necessarily reflective of their true life now."
• Ann Rhodes [01:28]: "We used to say you should really look at your estate plan every two years and think about at least updating it, like, for real, like, redoing the thing every five years."
• Thomas Kopelman [01:54]: "Every other year, we do insurances. Every other year, we do the estate planning."
• Ann Rhodes [02:12]: "Don't forget not only to review the estate planning documents [...] but actually also beneficiary designations."
• Ann Rhodes [04:16]: "Spouses tend to have default rights over that client's assets if the client passes away under law."
• Thomas Kopelman [06:04]: "If something happened to you, like, the court would decide who takes care of your kids."
• Ann Rhodes [09:24]: "Certain features that are different about the state regarding default rights of your spouse."
• Ann Rhodes [13:22]: "If I die, half of my wealth stock will go through my will or my trust, but the other half actually ends up in his hands."
• Thomas Kopelman [03:44]: "75% of our clients not have a contingent beneficiary on any of them."
• Ann Rhodes [18:32]: "As your child ages... changing the retirement account designations to remove trusts and put the kid in their own names is a good idea."
• Thomas Kopelman [15:51]: "Is this still the way that you want? And I think that's actually a really interesting point that I don't think about often."
• Ann Rhodes [15:51]: "You do not need to ask that question specifically, can pick up on some of those cues from your client that like, things have changed in their life."

This comprehensive summary encapsulates the essential discussions and insights from the "When To Update An Estate Plan" episode, providing financial advisors with the necessary information to guide their clients effectively through the dynamic landscape of estate planning.