Estate planning isn’t usually at the top of people’s to-do list during tax season. However, this season is one of the best times to review and update your estate plan. With financial documents already in hand, recent life events fresh in memory, and professional advisors involved, this period creates a natural opportunity to ensure your plan still reflects your goals, your family, and the current tax conditions.
Here are five key reasons why tax season is the ideal time to revisit your estate plan.
Aging of Clients and Beneficiaries
Aging is inevitable, which means estate plans need to evolve accordingly. For many people, aging forces us to consider new financial priorities, such as long-term care planning, Medicaid eligibility, or asset protection. Depending on when your estate plan was created, it may no longer properly address these new considerations, include tools designed to protect your assets, or ensure you receive future quality care.
Beneficiaries can also change over time. Children who were once minors may now be adults with careers, families, or financial responsibilities of their own. The conditions that made sense when they were younger, such as guardianships or age-based distributions, may now be outdated. Additionally, you may wish to protect their inheritances from their adult circumstances, such as divorces and creditors. Updating your estate plan ensures that your assets are distributed in a way that aligns with your own future plans, but also your beneficiaries’ current age, needs, and circumstances.
Beneficiary Changes / Unintended Beneficiaries
Tax season requires a slew of financial documents needing to be sorted, reviewed, and filed: bank statements, investment account summaries, retirement plan reports, and of course, tax forms such as 401(k)s, IRAs, and other accounts. This makes it an ideal time for clients to review their beneficiary designations across all their assets.
One of the most common (and expensive!) estate planning mistakes clients make is not updating their beneficiaries. Outdated designations can result in assets passing to the wrong people, such as former spouses, deceased relatives, or people that you no longer wish to benefit. Since beneficiary designations usually override your will or trust, these inconsistencies can jeopardize even the most carefully drafted estate plan.
By reviewing your beneficiary designations alongside your tax documents, you can ensure your estate plan is aligned, up to date, and reflective of your true intentions.
Ensure Your Estate Plan is Tax-Advantaged
As tax laws are introduced and amended, they can have a significant impact on your estate plan. Exemption amounts, tax rates, and planning strategies that once made sense may no longer be applicable, or even available.
Tax season is the perfect time to evaluate whether your estate plan is as tax-efficient as possible. An outdated estate plan may unintentionally increase your tax liability and reduce what passes to your loved ones. Reviewing your plan during tax season allows you to adapt to any changes in tax law and preserve more of your wealth for the next generation.
Life Changes That Require Immediate Attention
Major life events can also often trigger the need for updating your estate plan, and tax season provides an almost natural checkpoint to address them.
Common life changes include the following:
- Marriage or divorce
- Birth or adoption of a child or grandchild
- Death of a spouse, beneficiary, trustee, or executor
- Significant changes to your financial circumstances
- Moving to a new state
Each of these events can dramatically affect how your estate plan should be structured. For example, a divorce can require removing the ex-spouse from beneficiary roles or inheritance arrangements. The birth of a child or grandchild can mean new trust planning or designating a new guardian. A child or grandchild who was once a minor is now a legal adult and requires a new set of terms for their inheritance.
Regardless of the major life event, reviewing your estate plan annually during tax season helps ensure that no important change is overlooked.
The Important Role CPAs Can Play
During tax season, Certified Public Accountants (CPAs) are an invaluable tool, bringing a wealth of critical financial and tax knowledge when evaluating your estate plan.
A key advantage of CPAs is their ability to analyze the tax implications of an estate plan. They can help clients identify ways to minimize their estate, gift, and income taxes for themselves and their beneficiaries. For example, a CPA can help determine the best way to structure trusts, charitable giving, or retirement account distributions in order to maximize tax efficiency. This ensures that more of your assets pass to your loved ones rather than being lost to unnecessary taxation.
In some estate plans, a CPA may even be named as a Trustee or Executor due to their expertise, attention to detail, and familiarity with the client’s financial picture.
By reviewing your estate plan during tax season, you allow your CPA and estate planning attorney to work together and create a plan that is not only legally sound but also financially efficient and goal-oriented.
Conclusion
Estate planning is not a “set it and forget it” process. As your life, financial standing, and the law evolve, so should your plan. The beauty of tax season is that it provides an annual reminder to review beneficiary designations, assess your tax efficiency, address major life changes, and ensure that your plan will continue to serve your goals.
By implementing a regular review during this time of year, clients can prevent expensive mistakes, reduce their taxes, and provide a solid peace of mind knowing that their legacy is protected and aligned with their intentions.
If it’s been several years since your last estate plan review, or if you’ve experienced major changes, it may be time to take advantage of tax season and update your plan by contacting EPLO.