Avoid an Unpleasant Surprise: Review Your Will Regularly

July 17, 2017Alerts

Many people sign a will and assume they never need to look at it again. As lawyers, we prepare wills that are flexible and deal with multiple possible (even if unlikely) scenarios, but sometimes an unanticipated change and an outdated will conspire to cause great difficulties for surviving family members. What follows is a perfect example we recently dealt with that illustrates why wills need to be periodically reviewed.

The deceased husband, a New Jersey resident, signed his will in 1998. It provided that an amount equal to the federal estate tax exemption (then $625,000) would pass to a trust for the benefit of his wife and children, and the rest of the estate would pass to his wife outright. This was typical estate tax planning at the time, and would have caused no federal or state estate tax at the husband’s death if his wife survived him. For a while, that held true. Even as the federal estate tax exemption increased to higher amounts and the state estate tax exemption increased only to $675,000 (such as in New Jersey), there would have been only a small amount of state estate tax.

However, by the time the husband died in 2016, the federal estate tax exemption had ballooned to $5,450,000, while the New Jersey exemption, which has since increased to $2 million, remained at $675,000. The will provisions would have caused $5,450,000 of the husband’s estate—nearly all of his assets—to be held in trust. And that trust would have caused New Jersey estate tax of $444,800 to be payable while the wife was still alive. It was clearly not the result he had hoped for in 1998 when he signed his will.

Thankfully, we were able to have the will reformed through a court proceeding to reduce the trust portion to equal the state exemption. That carried out the husband’s intent to avoid estate taxes on his death, and to have the bulk of his assets pass to his wife outright. Imagine if, instead of the federal exemption amount passing to a trust for the family, it had been directed to pass to the children outright—another possibility that might have been appropriate in 1998. A successful will reformation is not guaranteed. It depends on the provable circumstances and the court—and generally takes more time and money than updating a will on a regular basis.

Not every state has an estate tax. However, changes in family circumstances or finances can have similarly unanticipated results with an outdated will.

We recommend reviewing your will periodically, roughly every 5 years. In reviewing your will, your attorney should consider current tax laws and possible future changes, as well as changes in your financial, personal and family circumstances.

If you have any questions about wiIls, trusts, or other estate planning matters, please contact your attorney at Fox Rothschild LLP.