Estate Planning Break Up.
By
Kenneth A. Vercammen, Esq. Author ABA’s “Wills & Estate Administration”
book
If you do
not write a Will, the government has already written one for you. Your assets
go to whoever a state law says receives the assets, or to the government
itself!
As average
Americans, we work 80,000 hours in a lifetime, or 45 to 55 years. In the havoc
after a break up, many persons forget to have a Will done to assure assets and
decisions are taken out of the hands or the ex spouse and ex spouse’s family.
In spite of all our resources and the assets
we earn during our lifetime, the vast majority of Americans do not take the
time to create the legal instructions to guide the court or a guardian upon
their death. National statistics indicate that more than 50% of Americans foolishly
die without leaving a Will. In the absence of a Will or other legal arrangement to distribute
property at death, the problems often arise and a Judges decides who gets
custody of your children and handles your money. This process is called the law
of intestacy. The result can be lengthy delays in the distribution of your
estate, court battles between relatives and your children being raised by
someone you do not favor. Without a Will, your family will have to pay
substantial costs for accountants, attorneys, bonding companies and probate
fees.
In
planning, make sure your assets go to your loved ones or favorite charity, not
an "ex". Therefore, we advise our separated or divorced clients to do
the following:
1)
Have an Estate Planning Law attorney
prepare a Will to distribute your assets to the people you care about the most.
If you already have a Will, prepare a new Will and have the old Will revoked.
(Your estate planning attorney will explain this to you.) Usually a new
executor is selected, who will also serve as funeral agent.
Although
in many states under law a divorce removes the ex spouse as a beneficiary, it
does not remove the ex as executor or receiving assets under a bank POD or
joint account. Don’t ever use with a cheap online form that often is not filled
out correctly. Self prepared documents are often not witnessed right and are
not admitted to probate. Have an experienced attorney prepare the estate
planning documents who will do it right. I could change my car oil and repair
the lawnmower, but I now prefer an experienced mechanic do that. You can also
create specific bequests so nice jewelry or family heirlooms go to a selected
child. Otherwise the executor can just sell them at the pawn shop. You can also
direct in your Will a child be excluded from inheriting. Example- they
testified against you in divorce court.
2)
Prepare a Power of Attorney to select someone to handle your finances if
you become disabled. Have your old Power of Attorney revoked. This means your
attorney or you should send notices to banks and your accounts to indicate the
prior Power of Attorney is invalid. If you have children over age 18, have your
attorney prepare a Power of Attorney for the
over 18 children so the custodial parent can still have access to their
records and pay their bills if they are in an accident.
3)
Select a new beneficiary on assets you may own, such as stocks, transfer
upon death brokerage accounts, bank accounts, IRA, retirement accounts, 401k,
payable upon death accounts POD , and other financial assets. Make sure you see
the actual change in beneficiary in writing. Don’t rely on a phone call from
the company that accounts are revised. Even if a court approved divorce decree
states that a beneficiary should be changed, make sure you have changed the beneficiary
designations. Remember, even a new Will does not change account beneficiaries
on non-probate assets.
Change passwords on all online accounts and
notify them in writing that the former spouse is not permitted excess to
records.
4)
Change your beneficiary under your own life insurance, whether whole
life insurance or term insurance. Again, don’t just rely on language in a
divorce decree to make sure your wishes are followed. If the ex-spouse is
required to obtain life insurance to pay to you or your children, you want to
see proof of the insurance in writing with beneficiary designation.
5)
Contact your employer's human resources and change the beneficiary on
pension, stock options, life insurance, and
other employee benefits. Note that if you are not yet divorced, your spouse may
have to sign a written waiver permitting you to change beneficiaries.
6)
Keep your personal papers at a location where an ex-spouse or the
child's parent can't steal or destroy them.
7)
If you have minor children, nominate someone under a Will to serve as
guardian to the children. Although the surviving parent obviously has first
right of custody of children, they may not even want custody. You don’t want
your ex in-laws to have custody of your children or access to the children’s
money. A new Will specifically shows a Surrogate and Probate Judge you’re your
wishes are. If no Will, then a judge can only guess.
Also
set up a Trust in the Will so children and grandchildren receive funds when
they are 21, 25 and 30. Preserve money for college and necessary expenses, not
a windfall to buy an expensive car when they turn 18. Also don’t make the minor
children beneficiary of big life insurance policies, because they automatically
receive when they turn 18. Instead, you can make your estate the beneficiary of
life insurance and other accounts. How many 18 year old kids would spend money
wisely? Seek assistance of estate planning attorney, don’t try to do everything
yourself.
A
trust also protects the beneficiary if there is a lawsuit and judgment against
them.
8)
Make sure the trustee for any funds designated for your children is the
"right" trustee. The former in laws may no longer be the best choice.
9) Re-title real estate, cars and
other assets in joint names. Usually a new Deed will have to be prepared. If
there is a mortgage, either a refinance or consent of mortgage company to
remove your name from the mortgage. [Good luck with that.]
10) In New Jersey,
if you are still married and living with a spouse, under certain instances the
surviving spouse has a right to "elect against the Will". The disinherited spouse may try to elect
against the Will and try to obtain one
third of the estate. Your attorney can explain how you can protect
yourself and your children.
11) Have a new Living Will / Advance Directive for health
care/ medical proxy prepared to remove the ex and select a family member you
trust with last medical wishes. The Living Will should contain new HIPPA
language to advise doctors and hospital who should have access to medical
information. You don’t want an estranged person to be able to make Medical
decisions or “Pull the plug”. A divorce decree does not remove the ex-spouse on
Medical Power of Attorney/ Living Will. They should have a new Living Will
prepared.
Separated
persons
Some clients
are not aware they can have a new Will and other estate planning documents
prepared prior to a formal divorce decree. To the contrary, our office drafts
Will for individuals in marital difficulty who want to protect their assets and
children in the event of an unexpected, sudden death. A personal can have a new Will and estate
planning documents without telling their spouse.
If spouses
are living together, the surviving spouse in many states can Elect against the
Will and obtain 1/3 of the augmented estate. See Uniform Probate Code 2-201. A
married person can also confidentially revoke a Power of Attorney, Living Will,
Trust etc. However, the original attorney cannot prepare new documents if the
attorney also prepared documents for the other spouse. The original attorney in
some states may be required to notify the other spouse. Therefore, a new,
independent attorney is suggested whose only loyalty is to you.
It is
important to prepare new documents if separation has started or is inevitable
since someone does not want their some of be ex to make financial and medical
decisions. However, typically a spouse cannot be removed as a beneficiary under
pensions, etc without that spouse’s written consent.
You can
select a funeral agent so your estranged spouse does not handle funeral arrangements.
Also speak
with your divorce attorney to inquire if you can take out 50% of assets in a joint account and deposit in a
new account payable death to adult children, not the estranged spouse.
If you own a
small business, prepare a contingency plan if you become disabled for someone
to run your business.
Second marriage
If
you decide to get remarried, have your attorney prepare a prenuptial agreement,
so your children can inherit your assets.
You want your children, not new spouse, to receive your assets if you
pass away. In many states, persons put their assets into Trusts for the benefit
of a child. However, if the trust is revocable, Medicaid will include the trust
assets as available money. In blended families, irrevocable trusts are useful
because a Will can be revocable by a competent person without telling their
spouse.
If You Have
No Will after someone divorces:
If you leave
no Will or your Will is declared invalid because it was improperly prepared or
is not admissible to probate:
1. People you dislike or people who dislike and ignore you
may get some of your assets or control assets. If you are not divorced and die
without a Will, under the uniform probate code your spouse will receive
100% of your estate if all the children
are from the same relationship. State law determines who gets assets, not you.
2. If you have minor children, the County Surrogate will
hold the child’s money until age 18 and it is difficult and time consuming to
petition the Surrogate to release funds for payment of tuition, medical bills,
clothing etc.
3. Additional expenses will be incurred and extra work will
be required to qualify an administrator-Surety Bond, additional costs and legal
fees
4. You Lose the opportunity to work with your attorney to try
to reduce Estate Tax, State inheritance taxes and Federal estate taxes
5. A Judge determines who gets custody of minor children. A
greedy brother or crazy mother in law could ask the court for custody. The
parent of your children may try to control the assets of your children and not
properly spend the money
6. It probably will cause fights and lawsuits within your family
ESTATE
PLANNING TO PROTECT CHILDREN
There may come a time when an unmarried
parent is unable, due to physical or mental incapacity, to take care of their
minor children. If a parent dies, the minor children will need a guardian. In
these circumstances, those caring for the children, as well as the courts will
need direction. By writing and executing a Will, which includes instructions on
guardianship one may select someone, either individually or jointly, with the
legal authority to act for minor children and assume control over the assets of
the children. Estate planning, which includes the execution of a Will, is just
as important for persons with minor children as they are for senior citizens.
Guardians
Most individuals appoint the parent to act as Guardian of the person and
property of their minor children. It is suggested that your Will include a
clause which provides that in the event the other parent predeceases you, or is
unsuitable or ceases to act as Guardian of the person and property of your
minor children, you appoint a trusted family member or close friend to act as
successor Guardian of the person and property of your minor children.
Sometimes
the divorce is amicable and the person may still wish to have their ex –spouse
be executor of their Will or Trustee of a trust for children. New estate
planning documents should still be signed after the divorce to confirm they
want to ex to remain involved in a potential estate.
Trustee for funds
Select a
trusted person, your close relative or friends, who will invest and hold your
children's money. If divorced or unmarried, most people do not select the other
parent. In your Will and Trust you can instruct the Trustee to apply amounts of
income and principal as they, in their sole discretion, deem proper for the
health, maintenance, education, welfare, or support of your children or other
minors. Direct that the trustee shall accumulate any income not needed for the
above purposes, paying and transferring the portion held in trust to the
beneficiary upon his or her attaining the age of majority or whichever age you
select.
Conclusion
While the preceding article contains
possible items to be discussed with your family, attorney and executor, the article is by no means exhaustive. A number of these items may not be applicable
in your situation, and probably there are many others that are applicable. The essential element is to spend some time
now considering what you should tell those most closely associated with you to
facilitate their handling of your affairs upon your death.
