Stapleton Elder Law

Worried About Your Children’s Marital Choices? Protect Their Inheritance with Trusts

You can’t chose your children’s spouses, but if you are concerned about having your legacy end up in the bank account of an ex, use a trust to protect your legacy.

Trusts are not as necessary as they once were, as a means of avoiding paying estate taxes.  However, they have another function that has become attractive to concerned parents. When children marry and then divorce, a trust, as part of a will or revocable living trust, can protect an inheritance from a divorce settlement.

A recent Kiplinger’s article, “A Trust Can Protect Your Adult Child’s Assets from a Failed Marriage, takes a look at how this works.

It’s not uncommon for a child to get an inheritance and to combine it with assets he or she owns jointly with their spouse, like a bank account, car or house. Depending upon the state in where they reside, the inheritance may become marital property subject to division in the event of a divorce.

If the child’s inheritance stays in a trust account, the inherited wealth can be shielded from a divorce. Some people will leave their children’s inheritance in a trust after a first divorce, because of concerns that their hard-earned dollars might end up in the wrong pockets if he or she remarries. If a child marries again and it doesn’t work, the second ex-spouse will not get those trust assets.

 It is true that creating a trust can be more complicated and more expensive than an outright distribution. However, many people are willing to pay the price to protect their child’s wealth. Consider the following alternatives regarding the parents’ decision to leave assets in trust for their children:

1. Children under age 18. If your child is under 18, you’re probably not considering his or her marriage or divorce. However, leaving assets in trust for a child may be a good plan. This is because a trustee will oversee the child’s assets and guide them in their decision-making with the funds. The trustee can also deny any financial requests. This is a valuable power, if a child is immature or easily influenced.
2. A newly married child. After the honeymoon, the journey can get bumpy as life becomes more stressful and complex. They may have to deal with issues like a job lay-off, health issues, financial worries or the stress of rearing children. Rather than creating a trust soon after your child’s marriage, see how the marriage progresses over the next few years.
3. Marriage status. As mentioned above, after five years or more, you should determine your comfort level with your child’s relationship and how you feel about your son-or daughter-in-law. If you see acrimony or you just have a “gut feeling” about the union’s future, it may be smart to create a trust for your child’s inheritance.

It is recommended that estate plans be reviewed every four or five years, when your will, trusts and other related documents need to be reviewed for changing family circumstances as well as changes in the law. You don’t need to make any changes, but a review with your estate planning attorney will ensure that your goals will be achieved and your legacy will be protected.

When major changes occur, such as a child’s divorce, you will certainly want to meet with your estate planning attorney to make any necessary changes.

Reference: Kiplinger (March 2017) “A Trust Can Protect Your Adult Child’s Assets from a Failed Marriage”

To learn how you can protect your child's inheritance, please visit our website.

 

Make Sure Your Divorce Decree Aligns with Your Estate Plan and Vice Versa

Forget to make these changes and your heirs may never forgive you. Forget to align these documents, and your estate planning attorney will never forget you.

Once the process of legally ending your marriage begins, you will need to make sure that your own interests are protected and that includes updating your estate plan to reflect this big life change. While some things may remain the same, like leaving your children certain assets, be assured that pretty much everything else will change, according to Forbes’ article, “The First Thing You Must Do When Your Divorce Is Final.”

Once your divorce is final, that is, the divorce decree has been approved by a judge, and a judgment rendered, contact your estate attorney and begin to review and revise the following legal and estate planning documents:

• Trusts
• Powers of Attorney (property, healthcare, HIPAA, etc.)
• Your will
• Life insurance policies
• Retirement accounts

If your ex-spouse is the beneficiary of your life insurance policy and you die—guess what? The proceeds may still be going to go straight to your ex-spouse and not your children. It doesn’t matter if your estate planning documents stipulate that the proceeds should go to your children. Unless the plan all along was to keep the ex as beneficiary, the kids get zero AND they’ll likely be none too pleased about that..

If you don’t even have a valid will in place, the divorce cuts the ex-spouse out as a legal heir, and that person won’t be in line to receive anything from your estate. But they can still get the insurance proceeds if you don’t make the beneficiary change.

What is often overlooked is this: when you make changes to estate planning documents, the changes must be in accordance with the terms of your divorce decree. The divorce judgment is legally binding, and if as a part of your divorce, you agreed that your ex-spouse would remain the beneficiary of a life insurance policy, you can’t go ahead and change the beneficiary designation on the policy.

If these documents are not in agreement, the divorce judgment will override any decisions you made in your will. Your estate planning attorney will need to review your divorce decree while preparing new documents for your new life.

Reference: Forbes (August 14, 2016) “The First Thing You Must Do When Your Divorce Is Final”

Please visit our website to learn more about updating your estate plan or to begin creating one. 

Divorce is Expensive, but Not for All the Reasons You Might Think

If you are going through a divorce, better sharpen your pencils. Two do live cheaper than one, and you'll need to anticipate these additional costs as you plan for the future.

Once the initial emotional trauma is past and the couple starts working towards creating separation agreements, it's time to consider the day-to-day costs of living that change as the result of a divorce. The family economic unit that formerly had one mortgage or rent payment, one cable bill, one energy bill, etc., now has two of each of these bills. Wise planning for life after divorce includes living expenses, taxes and retirement planning.

Money's recent article, "Keep a Divorce from Killing Your Finances," offers several important tips for those going through or recently completing the divorce process.

Monitor assets in your divorce settlement: If you're in the midst of a divorce, examine the type of assets that you receive as part of your divorce property settlement. The reason for this is your cash flow. Even in cases where the math demonstrates an equal split between the two parties, one spouse could get stuck with a non-liquid asset, which might end up being difficult to liquidate if cash flow becomes a problem.

Factor in an asset's taxable status: For many couples, a $100,000 brokerage account—for which you'll only pay tax on capital gains or dividends—might be of greater value than a $100,000 tax-deferred retirement account because you'd have to pay income tax on withdrawals from that type of account.

Keep an eye on taxes and their effects: Taxation influences continuing income. For example, the payment of alimony is tax deductible, but the receipt of alimony is treated as ordinary income. However, child support is not taxable to the recipient, which may change the way you prepare your annual tax return and the amount you owe the IRS. Make sure you keep this in mind the next time you file your taxes.

Make sure all estate planning documents are updated. You may be done with dealing with divorce paperwork, but you are not done yet. Go through all financial and estate planning documents, making sure that your beneficiary designations reflect your new marital status. Depending on the terms of your agreement, you may need to make changes on your pensions, 401(k)s, life insurance policies, trusts, power of attorney, etc. An estate planning attorney will be able to help you navigate this final part of your divorce.

Reference: Money (March 1, 2016) "Keep a Divorce From Killing Your Finances"

Please visit our website to learn more about estate planning and divorce.

Estate Sales May Be Easier When Letting a Professional Run the Show

Add estate sales to the many things that we used to do ourselves until we got smarter! Having a professional estate sales team on your side can take some of the sting out of having to sell your possessions.

Unless you are thrilled to get rid of all of your possessions, chances are your estate sale is taking place because of any one of the three Ds – death, divorce or downsizing. When you live in the same house for thirty years, you accumulate stuff. Lots of stuff. Preparing to sell your stuff requires being ruthless, unemotional and motivated. And you need to know the true market value of things that you may have some extreme attachments to. Sounds like a job for a professional! To save time, money, and heartache, many people today are turning to professional estate sale planners.

The Casper Journal’s recent article, “Professionals can ease burden of planning estate sale,” provides some good advice on the subject.

Selecting a reputable estate sales professional is important. These are your possessions, and many of them are valuable.

When finding an estate sales person, ask your family, friends, and business professionals for recommendations. Your estate planning attorney may have some very good references.

Next, look into their business histories and customer reviews at the Better Business Bureau’s website, and conduct a search online to see what type of articles or reviews of their services have been posted.

You should then choose a few and interview these professionals in person before deciding on the company you want to engage. Ask them about their credentials, certifications, and education in the area of estate sales. Also, make sure that they are insured and bonded.

Ask for the names of three or four references. Contact them to find out about their experiences working with the company and whether or not they would hire them again.

Before signing the contract, make sure you understand it, and consider asking your attorney to review it for you. Just so there are no surprises, you’ll want to find out the following from the estate sales business you plan to use:

• Does the company charge a flat fee or commission?
• What is their commission and are there additional fees?
• What services are included?
• What do you need to prepare for the sale?
• Is there an extra charge to clean before and after the sale?
• How much time will they need to get the estate ready for the sale?
• How are sales recorded?
• Can the family attend?
• How are discounts or negotiations handled?
• What do they do with stuff that doesn’t sell?

Make sure to be very thorough when you interview your prospective estate sales team. The better prepared you are, and the more comfortable you are with whomever you hire, the better your estate sale will be. Please visit our website to learn how you can ensure your estate plan reflects your intentions and desires.

Reference: The Casper Journal (November 11, 2015) “Professionals can ease burden of planning estate sale”