What Does My Estate Plan Look Like after Divorce?

Planning an estate after a divorce involves adopting a different type of arithmetic. Without a spouse to anchor an estate plan, the executors, trustees, guardians or agents under a power of attorney and health care proxies will have to be chosen from a more diverse pool of those that are connected to you.

Wealth Advisor’s recent article entitled “How to Revise Your Estate Plan After Divorce” explains that beneficiary forms tied to an IRA, 401(k), 403(b) and life insurance will need to be updated to show the dissolution of the marriage.

There are usually estate planning terms that are included in agreements created during the separation and divorce. These may call for the removal of both spouses from each other’s estate planning documents and retirement accounts. For example, in New York, bequests to an ex-spouse in a will prepared during the marriage are voided after the divorce. Even though the old will is still valid, a new will has the benefit of realigning the estate assets with the intended recipients.

Any trust created while married is treated differently. Revocable trusts can be revoked and the assets held by those trusts can be part of the divorce. Irrevocable trusts involving marital property are less likely to be dissolved and after the death of the grantor, distributions may be made to an ex-spouse as directed by the trust.

A big task in the post-divorce estate planning process is changing beneficiaries. Ask for a change of beneficiary forms for all retirement accounts. Without a stipulation in the divorce decree ending their interest, an ex-spouse still listed as beneficiary of an IRA or life insurance policy may still receive the proceeds at your death.

Divorce makes children assume responsibility at an earlier age. Adult children in their 20s or early 30s typically assume the place of the ex-spouse as fiduciaries and health care proxies, as well as agents under powers of attorney, executors and trustees.  If the divorcing parents have minor children, they must choose a guardian in their wills to care for the children, in the event that both parents pass away.

Ask an experienced estate planning attorney to help you with the issues that are involved in estate planning after a divorce.

Reference: Wealth Advisor (July 7, 2020) “How to Revise Your Estate Plan After Divorce”

 

What Happens If I Don’t Fund My Trust?

Trust funding is a crucial step in estate planning that many people forget to do. However, if it’s done properly, funding will avoid probate and provide for you in the event of your incapacity and save on estate taxes.

Forbes’s recent article entitled “Don’t Overlook Your Trust Funding” looks at some of the benefits of trusts.

Avoiding probate and problems with your estate. If you’ve created a revocable trust, you have control over the trust and can modify it during your lifetime. You are also able to fund it, while you are alive. You can fund the trust now or on your death. If you don’t transfer assets to the trust during your lifetime, then your last will must be probated, and an executor of your estate should be appointed. The executor will then have the authority to transfer the assets to your trust. This may take time and will involve court. You can avoid this by transferring assets to your trust now, saving your family time and aggravation after your death.

Protecting you and your family in the event that you become incapacitated. Funding the trust now will let the successor trustee manage the assets for you and your family, if your become incapacitated. If a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets which can be expensive and time consuming.

Taking advantage of estate tax savings. If you’re married, you may have created a trust that contains terms for estate tax savings. This will often delay estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during his or her lifetime while the ultimate beneficiaries are your children. Depending where you live, the trust can also reduce state estate taxes. You must fund your trust to make certain that these estate tax provisions work properly.

Remember that any asset transfer will need to be consistent with your estate plan. Your beneficiary designations on life insurance policies should be examined to determine if the beneficiary can be updated to the trust. Speak with an experienced estate planning attorney to assist you.

You may also want to move tangible items to the trust, as well as any closely held business interests, such as stock in a family business or an interest in a limited liability company (LLC). Ask an experienced estate planning attorney about the assets to transfer to your trust. Fund your trust now to maximize your updated estate planning documents.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

 

How Can I Avoid Family Fighting in My Estate Planning?

It’s not uncommon for parents to modify their first estate plans when their children become adults. At that point, many parents’ estate plans are designed to help efficiently transfer assets to the surviving spouse and ultimately to the adult children. However, this process can encounter a number of hiccups and headaches.

Forbes’ recent article entitled “Three Steps To Estate Planning Without The Family Friction” explains that there are a number of reasons for sibling animosity in the inheritance process. The article says that frequently there are issues that stem from a lack of communication between siblings, which causes doubts as to how things are being done. In addition, siblings may not agree if and how property should be sold and maintained. To help avoid these problems, use this three-step process for estate planning.

Work with an experienced estate planning attorney. Hire an estate attorney who has many years of working in this practice area. This will mean that they’ve seen—and more importantly—resolved every type of family conflict and problem that can arise in the estate planning process. That’s the know-how that you’re really paying for, in addition to his or her legal expertise in wills and trusts.

Create a financial overview. This will help your beneficiaries see what you own. A financial overview can simplify the inheritance process for your executor, and it can help to serve as the foundation for you and your executor to frankly communicate with future beneficiaries to reduce any lingering doubts or questions that they may have, when they’re not in the loop. Your inventory should at least include the following items:

  • A list of all assets, liabilities and insurance policies you have and their beneficiaries
  • Contact information for all financial, insurance and legal professionals with whom you partner;
  • Access information for any websites your beneficiaries may need for your online accounts; and
  • A legacy letter that discusses non-financial items for your children.

Hold a family meeting. Next, conduct a family meeting that includes the parents and the children who will be inheriting assets. Some topics for this meeting include:

  • The basics of your estate intentions
  • Verify that a trusted person knows the location of your important estate documents
  • State who your executor and other involved people will be and your rationale
  • Make certain that all parties value communication and transparency during this process; and
  • Discuss non-financial legacy items that are important for you to give to your children.

This three-step process can help keep your children’s relationships intact after you are gone. Hiring an experienced estate planning attorney, creating a clear financial overview and communicating what’s important to you are critical steps in helping to keep your family together.

Reference: Forbes (July 2, 2020) “Three Steps To Estate Planning Without The Family Friction”

 

A Non-Medical Check Up – For Your Estate Plan

An estate plan isn’t just for you—it’s for those you love. It should include a will and possibly, trusts, a power of attorney for financial affairs and a health care directive. As many as 60% of all Americans don’t have a will. However, the COVID-19 crisis has highlighted for everyone the need to have those documents. For those who have an estate plan, the need for a tune-up has become very clear, says the article “Time for a non-medical checkup? Review your will” from the Pittsburgh Post-Gazette.

With any significant change in your life, a review of your estate plan is in order. Keep in mind that none of your estate planning documents are written in stone. They should be changed when your life does. COVID-19 has also changed many of our lives. Let’s take a look at how.

Has anyone you named as a beneficiary died, or become estranged from you? Will everyone who is a beneficiary in your current estate plan still receive what you had wanted them to receive? Are there new people in your life, family members or otherwise, with whom you want to share your legacy?

The same applies to the person you selected as your executor. As you have aged over the years, so have they. Are they still alive? Are they still geographically available to serve as an executor? Do they still want to take on the responsibilities that come with this role? Family members or trusted friends move, marry, or make other changes in their lives that could cause you to change your mind about their role.

Over time, you may want to change your wishes for your children, or other beneficiaries. Maybe ten years ago you wanted to give everyone an equal share of an inheritance, but perhaps circumstances have changed. Maybe one child has had career success and is a high-income earner, while another child is working for a non-profit and barely getting by. Do you want to give them the same share?

Here’s another thought—if your children have become young adults (in the wink of an eye!), do you want them to receive a large inheritance when they are young adults, or would you want to have some control over when they inherit? Some people stagger inheritances through the use of trusts, and let their children receive significant funds, when they reach certain ages, accomplishments or milestones.

Have you or your children been divorced, since your estate plan was last reviewed? In that case, you really need to get that appointment with an estate planning attorney! Do you want your prior spouse to have the same inheritance you did when you were happily married? If your children are married to people you aren’t sure about, or if they are divorced, do you want to use estate planning to protect their inheritance? That is another function of estate planning.

Taking out your estate plan and speaking with your estate planning attorney is always a good idea. There may be no need for any changes—or you may need to do a major overhaul. Either way, it is better to know what needs to be done and take care of it, especially during a times like the one we are experiencing right now.

Reference: Pittsburgh Post-Gazette (July 27, 2020) “Time for a non-medical checkup? Review your will”

 

Avoid These Mistakes with Your Estate Plan

Estate planning means putting together a plan on paper following the letter of the law when it comes to what should happen to assets when you die. It also includes your decision regarding who will care for your children, who will make decisions on your behalf if you are unable and what kind of care you do or don’t want when you are seriously ill or injured. It doesn’t have to be difficult, but according to the article “10 Mistakes Often Made When Estate Planning” from SavingAdvice.com, there are ten classic mistakes to avoid.

1—Thinking you don’t have an estate and not having an estate plan. Your estate is whatever you own: a house, regardless of its size, a car, personal items, financial accounts, pets and any items that have monetary or sentimental value. You might think your family will just figure things out when you die. In most cases, they won’t, or not easily. That creates a burden for them.

2—Thinking only about after death. Most of what is done in estate planning does concern what happens after you die, but it also includes protection for you and loved ones while you are living. Certain documents are created to protect you, if you become incapacitated. It also includes life insurance, disability insurance and long-term care insurance.

3—Not making sure all of your estate planning documents work together. Let’s say you have a life insurance policy and the beneficiary is your first husband. If you remarry, you need to update that form. What if you named someone to be your beneficiary on retirement accounts, but you have learned since you named them that the person won’t be able to manage the money? An estate planning attorney can help you put all of the pieces together to work correctly.

4—Not planning for minor children. If you have children who are under age 18, your estate plan is the document that tells the court two very important things: who you want to raise them (to be their guardian) and who you want to be in charge of the money left for their care.

5—Not taking advantage of trusts. A revocable trust gives you control over assets while you are alive, but passes control to a beneficiary when you die. It, therefore, avoids probate for the assets in the trust. However, if you don’t do this correctly, you’ll create more problems than you solve.

6—Forgetting about taxes. An estate plan helps minimize taxes for your estate and for your heirs. Otherwise, your heirs could receive far less, and Uncle Sam will receive far more than you wanted.

7—Failing to set aside adequate liquid assets. When you die, your loved ones will need to pay for a funeral, which are very expensive. Or you may own a business that you left to heirs—they may need a certain amount of cash to continue operating, while things are being settled. Make arrangements, so you don’t leave loved ones or business partners high and dry.

8—Avoiding the tough conversations while you’re alive. Maybe you want to leave your children the family home, but they don’t want it. You may also want to be sure they take your ancient Pekinese dog, who they never warmed up to. Talk with your heirs about your wishes and understand if your wishes are not the same as theirs. Adjust your estate plan accordingly.

9—Overlook the concept of secondary beneficiaries and executors. If you have three children and name only one as a beneficiary, what happens if that one dies? The same goes for naming an executor. You’ll want to name a primary and a secondary executor, and multiple beneficiaries.

10—Thinking estate planning is done once and finished forever. Estate planning is never really done, until you die. Life changes, your relationships change and assets change. Just as you do your taxes once a year, you should review your estate plan every time there is a big change in your life or every three or four years. You should also contact your estate planning attorney to schedule an appointment to do this.

Reference: SavingAdvice.com (July 24, 2020) “10 Mistakes Often Made When Estate Planning”

 

What Basic Estate Planning Documents Do I Need?

AARP’s recent article entitled “Sign These Papers” suggests that the following documents will give you and your family financial protection, as well as peace of mind. These are the basic estate planning documents that you need.

Advance Directive. This document gives your family, loved ones and medical professionals your instructions for your health care. A living will, which is a kind of advance directive, details the treatment you’d like to have in the event you’re unable to speak. It covers things like when you would want doctors to stop treatment, pain relief and life support. Providing these instructions helps your family deal with these issues later.

Durable Power of Attorney for Health Care. This document, regularly included in an advance directive, lets you name a trusted person (plus a backup or two) to make medical decisions on your behalf, when you’re unable to do so.

Revocable Living Trust. Drawn up correctly by an experienced estate planning attorney, this makes it easy to keep track of your finances now, allow a trusted person step in, if necessary, and make certain that there are fewer problems for your heirs when you pass away. A revocable living trust is a powerful document that allows you to stay in control of all your finances as long as you want. You can also make changes to your trust as often as you like.

When you pass away, your family will have a much easiest task of distributing the assets in the trust to your beneficiaries. Without this, they’ll have to go through the probate process.  It can be a long and possibly costly process, if you die with only a will or intestate (i.e., without a will).

Will. Drafting a will with the guidance of an experienced estate planning attorney lets you avoid potential family fighting over what you’ve left behind. Your will can describe in succinct language whom you want to inherit items that might not be in your trust — your home or car, or specific keepsakes, such as your baseball card collection and your Hummel Figurines.

Durable Financial Power of Attorney. If you’re alive but incapacitated, the only way a trusted person, acting on your behalf, can access an IRA, pension or other financial account in your name is with a durable financial power of attorney. Many brokerages and other financial institutions have their own power of attorney forms, so make sure you ask about this.

These five documents (sometimes four, if your advance directive and health care power of attorney are combined) help you enjoy a happier, less stressful life.

In drafting these documents, you know that you’ve taken the steps to make navigating the future as smooth as possible. By making your intentions clear and easing the inheritance process as much as you possibly can, you’re taking care of your family. They will be grateful that you did.

eference: AARP (August/September 2018) “Sign These Papers”

 

Don’t Overlook Key Parts of Estate Plan

The importance of having key estate planning documents cannot be overstated. That includes a will, an advance directive, powers of attorney for health care and financial matters and guardianships for minor children. Trusts may also be part of an estate plan and they need to be created and funded in a timely manner. However,, according to the article “7 Things Your Client’s Estate Plan Might Be Missing: Morningstar” from Think Advisor, there are a number of frequently overlooked additional parts to an estate plan that make a difference.

Financial Overview. This gives a broad outline of your assets and can be a useful discussion starting point when one spouse manages the money and the other needs to be brought up to speed. It includes information about larger assets, including the home, investments, cars and other valuables.

A Directory. Creating a complete master list of all accounts, including the account number, website addresses and the names of any individuals that you deal with on a regular basis, avoids sending loved ones on a scavenger hunt. Keep this document safe—either encrypt it or keep it in a locked, fireproof safe in your home.

Personal Property. Wills contain directions about property, but not everything gets included. Make a list of any tangible personal property that you want to go to specific people, like jewelry or artwork, and create a detailed memo. It won’t be part of the will but most states consider such memos legally binding as long as they are mentioned in the will. Your estate planning attorney will know what is best for your situation and in your state.

Plan for Pets. The best way to do this is with a pet trust which is enforceable. You name a person to take care of your pets and how much money they should use to care for the pet. The will can be used to specify who should be your pet’s caretaker. You can leave assets for the pet, but the designated person is not legally bound to use the money for the pet’s well-being.

Digital Estate Plan. Make a plan for your digital property, including tangible digital devices, like computers and phones and the data stored on devices in the cloud and online accounts, including social media, websites, emails, photos, videos, etc. Start by making an inventory of all digital accounts, which needs to be stored in the same way your directory is: under lock and key.

End of Life Plan. Advance directives are used to direct your wishes towards life-extending care but they don’t always go into detail. Providing additional information to loved ones who might need to make health care decisions could alleviate a lifetime of guilt. Having conversations is a starting point but putting your wishes into a document is better.

Ethical Will. An ethical will in which the person hands down their belief system to loved ones is a gift and part of your legacy. What would you want the next generation to know about your beliefs? What life lessons do you want to share?

Reference: Think Advisor (July 22, 2020) “7 Things Your Client’s Estate Plan Might Be Missing: Morningstar”

 

What Should I Know about Beneficiaries?

When you open almost any kind of financial account, like a bank account, life insurance, a brokerage account, or a retirement account – the institution will ask you to designate a beneficiary. You’ll also name beneficiaries when you create a will or other legal contracts that require you to specify someone to benefit. With some trusts, the beneficiary may even be you and your spouse while you’re alive. So what is a beneficiary?

The beneficiary is typically a person, but it could be any number of individuals, as well as the trustee of your trust, your estate, or a charity.  When you’re opening an account, many people forget to choose a beneficiary mainly because it’s not necessary to do so with many financial accounts. However, you should name your beneficiaries because it ensures that your assets will pass to the people you intend. It also eliminates conflict and can decrease legal interference.

There are two basic types of beneficiaries: a primary beneficiary and a contingent beneficiary. A primary beneficiary (or beneficiaries) is first in line to get the distributions from your assets. You can assign different percentages of your account to this group. A contingent beneficiary will benefit, if one or more of the primary beneficiaries is unable to collect (typically upon death).  You should review the designations regularly, especially when there’s a major life event, such as a death, divorce, adoption, or birth. This may change who you want to be your beneficiary.

Ask an experienced estate planning attorney to help you make certain that any language in your will, doesn’t conflict with beneficiary designations. Beneficiary designations take precedence over your will.  You can have a minor child as a beneficiary but a minor usually can’t hold property. Consequently, you’ll need to set up a structure so the child receives the assets. You can appoint a guardian who will keep the assets in custody for the minor. You may also be able to use a trust to the same effect but with an added benefit that you can state that the assets be given to beneficiaries only when they reach a certain age or for a certain purpose, like buying a first home or for college tuition.

With estate planning, make sure to ask an experienced estate plaattorney to help you structure any legal documents, so they achieve your aims without creating further complications.

Reference: Bankrate (July 1, 2020) “What is a beneficiary?”

 

How Can I Protect Assets from Creditors?

Forbes’ recent article entitled “Three Estate Planning Techniques That Protect Your Assets From Creditors” explains that the key to knowing if your assets might be susceptible to attachment in litigation are the fraudulent conveyance laws. These laws make a transfer void if there’s explicit or constructive fraud during the transfer. Explicit fraud is when you know that it is likely an existing creditor will try to attach your assets. Constructive fraud is when you transfer an asset without receiving reasonably equivalent consideration. Since these laws void the transfer, a future creditor can attach your assets.

Getting reasonably equivalent consideration for a transfer of assets will eliminate the transfer being treated as constructive fraud. Reasonably equivalent consideration includes:

  • Funding a protective trust at death to provide for your spouse or children
  • Asset transfer in return for interest in an LLC or LLP; or
  • A transfer that exchanges for an annuity (or other interest) that protects the principal from claims of creditors.

Limited Liability Companies (LLCs) can be an asset protection entity because when assets are transferred into the LLC, your creditors have limited rights to get their hands on them. Like a corporation, your interest in the LLC can be attached. However, you can place restrictions on the sale or transfer of interests that can decrease its value and define the term by which sale proceeds must be paid out. An LLC must be treated as a business for the courts to treat them as a business. Thus, if you use the LLC as if it were your personal property, courts will disregard the LLC and treat it as personal property.

Annuities are created when you exchange assets for the right to get payment over time. Unlike annuities sold by insurance companies, these annuities are private. These annuities are similar to insurance company annuities, in that they have some income tax consequences, but protect the principal against attachment.

You can also ask an experienced estate planning attorney about trusts that use annuities, which are called split interest trusts. There is a trust where you (the Grantor) give assets but keep the right to receive payments which can be a fixed amount annually with a Grantor Retained Annuity Trust (or GRAT.)

Another trust allows you to get a variable amount based on the value of the assets in the trust each year. This is a Grantor Retained Uni-Trust or GRUT. If the assets are vacant land or other tangible property or being gifted to someone who’s not your sibling, parent, child, or other descendant, you can keep the income from the assets by using a Grantor Retained Income Trust (or GRIT).

Along with a trust where you make a gift to an individual, you can protect the trust assets and get a charitable deduction if you make a gift to charity through trusts. There are two types of trust for this purpose: a Charitable Remainder Trust (CRT) lets you keep an annuity or a variable payment annually with the remainder of the trust assets going to charity at the end of the term; and a Charitable Lead Trust (CLT) where you give a fixed of variable annuity to charity for a term and the remainder either back to you or to others.

To get the most from your asset protection, work with an experienced estate planning attorney.

Reference: Forbes (June 25, 2020) “Three Estate Planning Techniques That Protect Your Assets From Creditors”

 

How to Plan for Incapacity

Planning for incapacity is just as important as planning for death. One is certain, the other is extremely likely. Therefore, it makes sense to prepare in advance, advises the article “Planning ahead for incapacity helps you and family” from The Press-Enterprise.

Let’s start by defining capacity. Each state has its own language but for the most part, incapacity means that a person is incapable of making decisions or performing certain acts. A concerned adult child is usually the one trying to have a senior parent declared incapacitated.  A person who has a mental or physical disorder may still be capable of entering into a contract, getting married, making medical decisions, executing wills or trusts, or performing other actions. However, before a person is declared incapacitated by medical professionals or a court, having a plan in place makes a world of difference for the family or trusted person who will be caring for them. Certain legal documents are needed.

Power of Attorney. This is the primary document needed in case of incapacity. There are several kinds, and an estate planning attorney will know which one will be best for your situation. A “springing” power of attorney becomes effective, only when a person is deemed incapacitated and continues throughout their incapacity. A POA can be general, broadly authorizing a named person to act on different matters, like finances, determining where you will live, entering into contracts, caring for pets, etc. A POA can also be drafted with limited and specific powers, like to sell a car within a certain timeframe.

The POA can be activated before you become incapacitated. Let’s say that you are diagnosed with early-stage dementia. You may still have legal capacity but might wish a trusted family member to help handle matters. For elderly people who feel more comfortable having someone else handle their finances or the sale of their home, a POA can be created to allow a trusted individual to act on their behalf for these specific tasks.

A POA is a powerful document. A POA gives another person control of your life. Yes, your named agent has a fiduciary duty to put your interests first and could be sued for mismanagement or abuse. However, the goal of a POA is to protect your interests, not put them at risk. Choosing a person to be your POA must be done with care. You should also be sure to name an alternate POA. A POA expires on your death, so the person will not be involved in any decisions regarding your estate, burial or funeral arrangements. That is the role of the executor named in your will.

Advance health care directive, or living will, provides your instructions about medical care. This document is one that most people would rather not think about. However, it is very important if your wishes are to be followed. It explains what kind of medical care you do or do not want, in the event of dementia, a stroke, coma or brain injury. It gets into the details: do you want resuscitation, mechanical ventilation or feeding tubes to keep you alive? It can also be used for post-death wishes concerning autopsies, organ donation, cremation or burial.

The dramatic events of 2020 have taught us all that we don’t know what is coming in the near future. Planning in advance is a kindness to yourself and your family.

Reference: The Press-Enterprise (July 19, 2020) “Planning ahead for incapacity helps you and family”