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ESTATE PLANNING
Good Reasons to Redo Your Will
by Ronaleen Roha

You don't want your estate planning to preoccupy you. But you shouldn't just let a plan molder in a drawer for years without a glance, either.

As a general rule, consider reviewing your will every three to five years. In between, a series of life events should prompt a review.

You get married. If you die without a will in common-law states, the law generally gives your spouse only a portion of your estate (whether or not you have children). So you need a will to leave everything to your spouse.

In community-property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) each spouse automatically owns half of all community property. Basically, that is property acquired during the marriage by means other than inheritance or gifts. You can leave your half of community property to anyone you choose, including your spouse.

Married couples' wills also should provide for what happens to their assets in the unlikely event that they die at the same time. If you are living with someone to whom you are not married, in most states your unmarried life partner cannot inherit anything you own in your own name unless you specify it in a will.

You have a child. The most important reason for parents to revisit their estate plan is to make sure their wills name a guardian. Consider including trusts to handle the assets that would go to your children.

You reach midlife. Smart tax planning could save your heirs thousands of dollars in federal estate taxes. Even though you can give an unlimited amount to a surviving spouse tax-free, leaving it all to your spouse might not be the best plan.

For example, if you and your spouse's estates together exceed the $1 million tax-free threshold for the federal estate tax, leaving everything to your spouse could overload his or her estate, subjecting assets you could have left tax free to the federal estate tax when your spouse dies.

A way around this is for each spouse to own enough assets to use up the amount the federal estate tax says each person can leave tax-free -- $1 million this year and in 2003. Because assets owned as joint tenants with the right of survivorship pass automatically to the survivor outside of the will (and probate), you may have to split some jointly held property to get there.

Then you can put up to $1 million in a bypass trust (or credit shelter trust) for your spouse's benefit; when your spouse dies, the principal goes to your children.

Even if your current will has a bypass trust, it's worth having it reviewed to avoid unintended results. For example, some trusts, especially some drafted years ago, provide that the trust gets assets equal to the maximum that can be passed tax free, and leaves the rest of the estate to the spouse. In this case, the bypass trust could get most -- or even all -- of your estate, especially if the last several years have been hard on your asset values. This could leave your spouse in the awkward position of having to go to the trustee for money, says Allen Falke, director of estate planning for a Worcester, Mass., CPA firm.

You get a divorce. In most states a divorce revokes the provisions of a will that apply to a former spouse. In some states a divorce revokes the entire will. You can use trusts to control assets that you want to go to your children, perhaps naming someone other than the former spouse trustee.

Revise any revocable living trust and beneficiary designations to remove your former spouse, unless you are prevented from doing so by the divorce decree. Assets with a beneficiary designation, such as life insurance death benefits and retirement plan balances, bypass probate and automatically go to the named beneficiary.

You remarry. Often, the key is to redo your plan to provide for your current spouse while protecting children from your last marriage. One way is through a qualified terminable interest property (QTIP) trust. This trust gives your current spouse the income from the trust for life and, possibly, some principal. But when he or she dies, the remaining assets go to the beneficiaries you choose.

You retire. If you retire to another state, or anytime you move to another state (especially from a common-law state to a community property state or vice versa), have documents reviewed. If you didn't have them before, now is the time to get financial and health care durable powers of attorney and a living will.

Your spouse dies. Don't rush to make major financial decisions, but talk with an advisor as soon as you can. For example, as you get older, a revocable living trust might become more desirable as a mechanism to help you plan in case you become incapacitated. The person you name as trustee can take over from you if you become unable to handle your own affairs. Assets in a revocable living trust bypass probate.

Other reasons. Review your plan when there are tax law changes and when your assets increase (perhaps through an inheritance) or decrease (as they may have in the last bear market).