As the year draws to a close, it’s a time for reflection and preparation. We think back on what went well, what didn’t, and what changes we need to make for the future. While some focus on setting personal goals or taking stock of finances, an estate plan review is often overlooked.

An estate plan is more than just a will or a list of assets; it’s a comprehensive blueprint for how you want your affairs handled and your legacy protected. Because it plays such a vital role, the end of the year is an ideal time to ensure your estate plan is in order. Here are some compelling reasons why this period is perfect for such a review.

Estate Plan Considerations

The end of the year is inherently a period where many people are focused on taxes. This is when you gather financial documents, consider charitable contributions, and estimate your annual income and deductions.

Since estate planning and taxes are closely intertwined, reviewing your estate plan now makes perfect sense. This is especially important for high-net-worth individuals as estate taxes can significantly erode the value of the assets you intend to pass on to your heirs.

The federal estate tax exemption and state-level estate or inheritance taxes can change periodically. By reviewing your plan at the end of the year, you ensure that your estate is structured to maximize tax efficiency, considering any changes that might be enacted for the upcoming tax year.

If any adjustments are needed, such as updating trusts, changing asset allocations, or making new charitable bequests, it’s easier to incorporate them into your broader tax strategy.

Life Events Throughout the Year

Throughout any given year, life happens. There could be births, deaths, marriages, or divorces within your family. Perhaps you welcomed a new grandchild or an adult child who got married or divorced. These significant life events directly impact how you want your estate to be distributed.

If your family structure has changed, the end of the year is the perfect time to reflect on whether your estate plan still reflects your wishes.

For example, if you’ve had a new child or grandchild, you might want to update your will or trust to include provisions for that child’s future education or well-being.

On the other hand, if someone in your estate plan has passed away, you may need to reassign responsibilities, such as the executor, trustee, or beneficiary. Taking stock of these changes annually can prevent confusion or unintended consequences.

Financial Performance and Market Conditions

Financial markets and personal wealth can change significantly over a year. Perhaps your investments performed better or worse than expected, or you acquired or sold significant assets like a vacation home, stock portfolio, or business interests.

Given these fluctuations, it’s a good idea to revisit your estate plan to ensure it still aligns with your current financial situation and long-term goals.

For example, if your estate’s value has grown considerably, it may be time to revisit gifting strategies or other tax-efficient wealth transfer techniques.

Conversely, if your portfolio took a downturn, you may want to reconsider how best to protect certain assets or rethink allocations to ensure your loved ones are still adequately provided for.

Reviewing Legal Documents for Accuracy

Like any legal document, estate planning paperwork can become outdated. Reviewing the contents of your will, trust, power of attorney, and healthcare directives ensures that your wishes are accurately represented.

Maybe you’ve moved to a new state, and your estate planning documents must comply with the latest state laws. These documents may contain outdated information such as former addresses, incorrect names, or old accounts if you haven’t reviewed them.

The end of the year, when administrative and financial tasks are at the top of your mind, is an excellent opportunity to go through these documents with your attorney.

Ensuring that each piece of your estate plan is current and valid will avoid legal complications in the future and provide peace of mind that your loved ones will be taken care of according to your wishes.

Charitable Giving and Philanthropic Goals

Many people like to make charitable donations toward the end of the year, as it’s a time for giving and also an opportunity to maximize tax deductions. Reviewing your estate plan now allows you to evaluate your long-term philanthropic goals.

Suppose you’re planning to make significant donations or establish a charitable trust. In that case, these should be included in your estate plan to ensure that your charitable intentions are carried out as you envision.

Additionally, reviewing your estate plan alongside your charitable goals can highlight opportunities for incorporating strategies like donor-advised funds, charitable remainder trusts, or direct endowments, which can provide significant tax advantages.

Planning this out before the new year starts enables you to enter the next tax year confident that your contributions are both meaningful and efficient.

Capitalizing on Year-End Business Reviews

If you own a business, the end of the year is typically when you conduct annual financial reviews and business planning. This is an ideal time to evaluate your business succession plan and ensure it aligns with your estate plan.

Whether you plan to pass the business on to a family member, sell it, or have a buy-sell agreement, ensuring your estate plan is coordinated with your business goals is crucial.

Business owners should review their key person insurance policies, buy-sell agreements, and any trusts that might be in place to hold business assets.

The estate plan should clearly outline who will take over or how the business should be managed in the event of your incapacity or passing, minimizing disruptions and protecting the livelihood of employees and family members who depend on the company.

Healthcare and Incapacity Planning

Another key component of estate planning that is often overlooked is healthcare and incapacity planning. The end of the year, as you might be revisiting health insurance and benefits or making medical appointments, is an excellent time to ensure that your healthcare directives and power of attorney designations are current.

This is particularly important if you’ve recently been diagnosed with a new health condition or your health has declined.

A thorough review of your medical power of attorney, healthcare directives, and living wills will ensure they reflect your current medical wishes. You want to be sure that the right person is designated to make decisions on your behalf and that your healthcare preferences are articulated.

Family Meetings and Communication

The holiday season often brings families together, making it an opportune time to have frank discussions about estate planning with your loved ones. While these conversations can be difficult, having them while everyone is present helps prevent misunderstandings and clarifies your wishes.

Use the end-of-year gathering to communicate the essential elements of your estate plan, such as who has been named executor, trustee, or power of attorney. These conversations can also discuss broader legacy planning, including your goals for the family and how you want to be remembered.

Preparing for the Year Ahead

By reviewing your estate plan at the end of the year, you start the new year with confidence and clarity. You’ve accounted for personal changes, adjusted for financial landscape shifts, and ensured that all legal documents are accurate.

Starting January with a solid estate plan allows you to focus on new opportunities and goals without worrying about whether your legacy is protected.

Conclusion

The end of the year is a natural time for reflection and preparation, making it the perfect time to review your estate plan. From tax planning and financial changes to updating legal documents and ensuring your healthcare wishes are honored, taking a comprehensive look at your estate plan as the year ends is a smart strategy.

Not only does it allow you to start the new year with confidence, but it also provides peace of mind that your affairs are in order and your loved ones will be taken care of according to your wishes. Make it an annual tradition to review your estate plan, and you’ll find it easier to stay on top of changes and keep your legacy secure.