The Time to Update Your Will is Now

Share this post
Updating Your Will

Can’t remember the last time you reviewed yours-time to update your will!

Do you even have a will prepared?

Changes in tax law and in your personal life mean that most likely you need to update your will. Use this quick checklist to see if you need to update your will:
• You drew it up before 2001. The amount you can leave your heirs without paying federal tax has increased significantly, from $675,000 in 2001 to more than $12 million in 2022.
• You’ve moved to a new state where the estate tax exemption is higher.
• You got married, divorced, are now in a committed relationship, or have children who are now adults.
• Your wishes have changed. Including needing new beneficiaries or people to manage your finances and medical care.

Keep in mind that many people don’t have will as part of their financial plan. 72 percent of American adults ages 45 to 59 and 37 percent of those 60 and older do not have a will prepared, according to an April 2022 Consumer Reports survey.

You should be sure to have the following documents prepared for an estate plan.
• The will (or trust), which distributes assets to your heirs.
• A durable power of attorney (DPOA), which gives the person you name the ability to manage your affairs if you become incapacitated.
• A healthcare proxy, which allows your designee to serve as your healthcare advocate.
• An advance directive (i.e., a living will), which details your wishes if you are involved in a medical emergency.

Will Prep Steps – If you are starting from scratch not just an update to your will 
Gather your estate details. Before you meet with an estate lawyer, you’ll need to get some key information together. This includes names and contact information for anyone involved in your plan, such as family members and other beneficiaries, executors, etc.; statements from your bank, investment and retirement accounts, and pensions; the types of life insurance policies you have and the amount they provide; the approximate value of your real estate holdings and any mortgages; any businesses you have an interest in; and, if possible, any inheritance you’re expecting or charities you’re planning to leave a bequest to.

Something to double check: The beneficiaries you’ve named on each of your accounts will get the money—not people you name in your will. So if your ex-spouse is still the beneficiary listed on your pension, they will get the funds even if your will stipulates that your current spouse should inherit them. So do your homework!

• Assign executors and proxies. This is a good time to think about your choice of an executor and power of attorney. Most people choose a family member, a friend, or, less commonly, a trusted attorney or accountant. They should be people who are at ease with financial matters. You should also pick one or two backup executors.

When assigning a healthcare proxy, pick someone who can make a difficult personal decision for you. This is usually a spouse, close family member, or friend, not an attorney or accountant.

Keep in mind that if you’re not married to your partner­—and you want them to make decisions for you in a healthcare emergency—you’ll need to name them as your healthcare proxy by filling out a healthcare proxy form. You may also need to complete a Health Insurance Portability and Accountability Act (HIPAA) authorization form, which allows healthcare providers to discuss your case with your partner. If you want them to be able to make financial decisions on your behalf, give them power of attorney. Similarly, if you have unmarried children who are 18 or older, you may want them to make you their healthcare proxy and sign a HIPAA authorization form.

Hire the right attorney. Start with personal referrals, but the key qualifications to look for are a license to practice law in your state; membership in an organization like the NAEPC or the American College of Trust and Estate Counsel, both of which require a high level of experience and expertise; and being an accredited estate planner, which indicates specialized knowledge of estate tax and planning issues.

The Good News-Changes in Estate Taxes Help When You Update Your Will

There is some good news when you update your will. Estate Taxes are lower than they used to be. There’s no question that estate tax exemptions—the amount you can leave people without it being taxed—have increased substantially in the past two decades. A tax bill passed in 2010 made the exemption higher on a national level and allowed spouses who survive their partner to inherit the deceased partner’s exemption, effectively doubling their own exemption. (This is scheduled to shift again when the current law expires in 2026, but the exemption will revert to a still generous $6 million or so per person.)
• Some state tax rates have changed. There have been a number of increases—and decreases. (Twelve states plus the District of Columbia currently have estate taxes.) Most state tax exemptions are ample. For example, the 2022 exemption in Connecticut is $9.1 million, Maryland’s is $5 million, and New York’s is $6.1 million. For Illinois, the 2022 exemption is $4 million. These numbers may still sound high, but keep in mind that your estate includes the value of your house, retirement accounts, and life insurance, and all of those can add up quickly. So, talk to an estate planning attorney about ways to protect your assets if you live in one of these states or are planning to move or retire to one.

• There are new rules for inherited retirement accounts. As of 2020, anyone other than a spouse who inherits a 401(k) or traditional IRA must withdraw every penny within 10 years, potentially landing them with a big tax bill. To avoid this, you can move money out of those accounts today—paying the tax on withdrawals yourself—thus reducing the inheritance tax burden on your beneficiaries. You can then use the funds to buy a life insurance policy or give annual gifts to your beneficiaries while you’re still alive. We recommend consulting a tax professional before withdrawing funds from a qualified retirement plan.