Close this search box.

When Should You Update Your Estate Plan?

Jeremiah H. Barlow

JD, Head of Family Wealth Services


When to update your estate plan

Originally published in Wealth Point, August 2018


If you already have an estate plan in place, you may think that you are aptly prepared for any potential changes that may impact your life. In fact, this means you’ve only completed half of the work; it’s equally important to keep your estate plan updated. Here are three circumstances that may require you to review and update your estate plan.



Life changes come in multiple forms, including marriage, divorce, the birth of a child, illness,
a change of financial situation, or a move to another state. These types of life events may warrant a review and update of your estate documents because they can change how you would plan for these events and your beneficiaries.

While you can plan for the birth of a child, some events are almost impossible to plan
for in advance, such as divorce or advanced disabilities. For example, loved ones diagnosed with autism or Alzheimer’s may require implementation of a special needs trust
that can provide for your loved ones, while protecting them from themselves or
other obstacles.



While not all tax changes necessitate a revision of your estate plan, they may present a good opportunity to review your plan. This year, with the passing of the Tax Cuts and Jobs Act of 2017, there was a substantial change in the individual estate tax exclusion amount, from $5.49 million up to $11.18 million. (You can read more about what this increased tax exclusion may mean for your estate plan in the preceding article.)

Married couples, in particular, may see a significant change in how their trusts are drafted as a result of this increased tax exclusion (up to $22.36 million for a couple in 2018). Previously, many trusts were drafted with formula clauses. A key goal of these formula clauses was to maximize and preserve the estate tax exclusion. This was done by automatically forcing the amount equal to the deceased spouse’s estate tax exclusion into a bypass trust, with any remainder going to a survivor’s trust.

A survivor’s trust and bypass trust comprise a type of trust referred to as an A-B trust,
a trust that is typically used by married couples to minimize estate taxes. An A-B trust divides into two separate trusts upon death of the first spouse; in this case, the survivor’s trust (or trust A) and bypass trust (trust B). The bypass trust would hold the assets of the first spouse who dies; assets of the surviving spouse would go into the survivor’s trust.

Let’s consider a hypothetical scenario for Joe and Karen, a married couple, who drafted their estate plan in 2007 when the exclusion amount was at $2 million. At the time, Joe’s estate was worth $4 million. Had he died in 2007, the formula clause in his trust would have funded $2 million into the bypass trust and $2 million to the survivor’s trust
for Karen.

Take this example up to today—Joe passes
in 2018, never having updated their trust. Today, Joe’s estate is worth $10 million. Because the exclusion amount has increased to $11.18 million, the formula clause pushes the entire $10 million to the bypass trust exclusion. However, Joe and Karen really intended for the assets to be split equally between the bypass trust and the
survivor’s trust.

Today, given the more-than-doubled exclusion amount (from $5.49 million to $11.18 million), this may result in unintended consequences. As seen in the example with Joe and Karen, the formula clauses may result in up to $11.18 million passing into a bypass trust, which may be far more than originally anticipated when the trust
was designed.

A possible option is to remove formula clauses from your trusts, and replace them with a disclaimer design (this is also referred as to a “wait-and-see” approach), which can provide more flexibility. With disclaimer trust planning, decisions around what assets are placed in the trusts are deferred until the first spouse’s death, giving the decedent flexibility on timing and the types of assets to place in the trusts. With a “wait-and-see” design, Joe and Karen, our hypothetical example, would still utilize the bypass trust and survivor’s trust to set up their estates. However, the decision around what assets are placed in these trusts is deferred until after Joe’s death. This gives Karen time to make the best decision based on their family situation and tax dynamic at that time, rather than carrying out a plan that was designed in previous years, and likely under a different tax regime.



As part of your estate plan, it’s crucial that you have current incapacity documents, such as powers of attorney (that gives someone you choose the power to act on your behalf when you are unable to do so) and healthcare directives (a legal document that specifies what actions should be taken when you are unable to make decisions for yourself due to illness or incapacity).
An increasing trend that we’re seeing across the country is that financial and healthcare institutions are not accepting incapacity documents if they were signed more than four years ago. We’re told this is due to litigation risk. While there is no specific federal or state law that says incapacity documents become stale after 4 years, as many financial and healthcare institutions
are not taking these risks, neither should you.

After all, when you need these documents to work on your behalf, it’s generally too late to do anything about them.
Once you’ve determined a change needs to be made, remember that all of your estate plan documents should be updated, not just your trust. This includes updating incapacity documents, and beneficiary designation forms on your retirement accounts, life insurance, and annuities. Far too often, these documents are frequently overlooked. If any of these three scenarios apply to you, we encourage you to talk to your advisor about what changes to your estate plan
may be needed.


Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.

This document may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Mercer Advisors’ control.