Why You Need to Update Your Will Now
Changes in tax law and in your personal life may mean that yours needs to be updated. Here are the easiest (and smartest) ways to do it.
By Carla Fried
John T. Midgett, an estate planning attorney in Virginia Beach, Va., recently met new clients who shared that they hadn’t eyeballed their will since their daughter was 2 years old. She’s now 54.
“Just a few things have happened in their family’s life since then—and tax law has changed a lot, too,” says Midgett, president-elect of the National Association of Estate Planners & Councils (NAEPC).
Even if it has been less than 50 years since you last looked at your estate plan, you’re going to want to update it, not just because you may have some changes in your family situation but also because federal estate law has been altered, especially in the past 12 years. For example, you’ll want to revise your will if any of the following apply to you.
• 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 (Connecticut’s, for example, is $9.1 million) or lower (Oregon’s is $1 million).
• You got married, divorced, are now in a committed relationship, or have children who are now adults.
• Your wishes have changed. You need new beneficiaries or new people to manage your finances and medical care.
Whatever your reasons for updating—or if you don’t have a will as part of your plan, like 72 percent of American adults ages 45 to 59 and 37 percent of those 60 and older, according to an April 2022 CR nationally representative survey of 2,224 adults (PDF)—you’ll need to address these four parts.
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.
The Good News About Estate Taxes
• Federal 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.
A few states, though, have much lower limits: Massachusetts and Oregon exempt only the first $1 million in an estate, and Minnesota’s exemption is $3 million. These numbers may still sound pretty 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 you may need to 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 has to 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. But Midgett recommends consulting a tax professional before withdrawing funds from a qualified retirement plan.
Illustration: Klawe Rzeczy
How to Get Your Will Update Going
• First, decide whether you’ll DIY or hire an estate planner. In general, you can do it yourself if you know your estate won’t reach the limits of federal or state tax exemptions and you don’t have complex family dynamics—say, a blended family or relatives likely to challenge your will. This is the least expensive path to take. You can even handle your update free at online sites such as FreeWill, a service that guides you through the process of creating a legally binding will. (CR partners with FreeWill as a resource for CR members.) You can also pay a fee—starting at $99 for LegalZoom and $200 for Trust & Will—to do most of the work yourself but with some ability to ask questions or have an attorney review your plan, depending on the package you choose.
But there’s a downside to using certain DIY sites. LegalZoom, for example, allows free updates only for a year if you buy its $249 Estate Plan Bundle (not a more basic plan); after that you’ll have to pay for changes. Trust & Will has a subscription service ($19 per month) that allows revisions anytime.
• Weigh the benefits of expert help. Hiring an estate attorney will cost much more ($2,000 to $3,000, according to Midgett). But if the value of your estate is higher than federal or state tax exemption levels, it’s probably money well spent. A pro with expert knowledge of federal and state taxes could save your heirs a lot of money in taxes down the road and give you valuable peace of mind.
One thing you might want an attorney to handle is the creation of a trust, which those with larger estates often need. Having a living revocable trust (the “living” part refers to the fact that while you’re alive you can make changes whenever you want) means that your estate won’t need to go through probate, the process of getting court approval for how to disperse your assets, which can take years and cost the estate thousands in court and attorney’s fees. Setting up a trust is particularly important for unmarried partners, who generally have little or no inheritance rights in the eyes of the law. Establishing a trust can smooth the process of leaving assets to an unmarried partner by keeping the estate out of probate court, where other family members could challenge the provisions of the will, says Ruth Driscoll, an estate planning and probate lawyer in Elm Grove, Wis. While it’s possible to create a trust using a DIY service, in most cases an estate lawyer will be better able to tailor one to your exact needs.
• Hire the right attorney. Start with personal referrals, but the key qualifications to look for, Midgett says, 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.
Illustration: Klawe Rzeczy
Will Prep Steps
• Gather your estate details. Before you start to fill out an online will-making questionnaire or 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.
One surprising fact: 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.
• 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, says Patrick Hicks, general counsel at Trust & Will. They should be people who are at ease with financial matters. So while your 20-year-old child could legally be your executor, he might not be experienced enough to handle your affairs. Hicks also advises picking one or two backup executors.
When assigning a healthcare proxy, pick someone who can make a difficult personal decision for you if necessary, 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. You may need both documents to be allowed to help in a medical emergency or see their medical records. (This varies by state.) These forms are available online; just search for your state and “HIPAA authorization,” “healthcare proxy,” or “advance directive.” If you’re working with an attorney, he or she can draw up the documents. Either way, they need to be signed and in some cases witnessed and notarized. (Again, rules vary by state; a DIY site will provide instructions.) Most states allow some form of online notarization, so you may be able to get this done from home.
• Complete your plan. Once you’ve gathered all this intel and assigned key roles, creating your will is easy. Using a DIY site like FreeWill may take you only 20 minutes or so to get the job done. If you’re working with an attorney, expect at least a couple of meetings. (And generally speaking, most of these can be virtual meetings.) Either way, your final document will need to be signed, witnessed by two people who won’t inherit anything under the terms of the will, and notarized to make it legal and binding. (Requirements and regulations for witnesses and notarization vary by state.) Your attorney’s office should have witnesses and a notary on site.
Illustration: Klawe Rzeczy
What to Do With Your New Plan
• Keep your documents safe. Store the original signed copy of your will in a fireproof safe at home and tell your executor and family where it is and how to access it.
• Share with your team. Give printed copies or electronic files to your executor, your designees for financial and healthcare powers of attorney, and anyone you have given HIPAA authorization. Your healthcare proxy should also have a copy of your advance directive. Midgett says it’s wise to store and share all of these documents in digital form, so someone who’s acting on your behalf can pull up a copy from their smartphone or laptop in any kind of emergency. Also, be sure to file your healthcare proxy and advance directive with your primary physician’s office. (You’ll want to have healthcare proxies at the ready in the event that your chosen caregiver needs to make quick medical decisions.)
• Have a backup strategy. Consider giving a copy of your plan to an additional person in case your executor can’t be reached in an emergency—and make sure your family knows who your executor is. If an attorney created your plan, he or she should keep a copy of it on file. Make sure your executor and beneficiaries have the contact info for your estate attorney, too.
If you’re storing your documents in an encrypted, password-protected cloud service or a home safe, make sure you update anyone who needs the password or code. Otherwise, you’ll undermine your central goal: making it easy for people you trust to care for you and your estate.
Editor’s Note: This article also appeared in the July 2022 issue of Consumer Reports magazine.
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