Category: Divorce

Safeguard your Inheritance from Divorce

Safeguard your Inheritance from Divorce

Even if divorce is the last thing on your mind, when an inheritance is received, its wise to treat it differently from your joint assets, advises a recent article “Revocable Inheritance Trust: Inexpensive Divorce Protection” from Forbes. After all, most people don’t expect to be divorced. However, the numbers have to be considered—many do divorce, even those who least expect it. There are a few ways to safeguard your inheritance from divorce.

Maintaining separate property is the most important step to take. If you deposit a spouse’s paycheck into the account with your inheritance, even if it was by accident, you’ve now commingled the funds.

You might get lucky and have a forensic accountant who can dissect that amount and make the argument it was a mistake, as long as it only happened once, but the Court might not agree.

Long before the Court gets to consider this point, if your ex-spouse’s attorney is aggressively pursuing this one act of commingling as enough to make the property jointly owned, you could lose half of your inheritance in a divorce.

You might also try to mount a defense of the particular account or asset being separate property, by identifying the means of transfer. Was there a deed for real estate gifted to you from a parent or a wire transfer for securities? This information will need to be carefully identified and safeguarded as soon as the inheritance comes to you, in case of any future upheavals.

To spare yourself any of this grief, there are steps to be taken now to avoid commingling. Document the source of wealth involved as a gift or inheritance, maintain the property in a wholly separate account and consider keeping it in a different financial institution than any other accounts to avoid commingling.

Another way to safeguard your inheritance, such as gifts and inherited property, against a 50% divorce rate is to use a revocable trust. Creating a revocable trust to own this separate property allows you to make changes to it any time but maintains its separate nature, by serving as a wholly separate accounting entity. The trust will own the property, while you as grantor (creator of the trust) and trustee (responsible for managing the trust) maintain control.

For a turbo-charged version of this concept, you could go with a self-settled domestic asset protection trust. This is a more complex trust and may not be necessary. Your estate planning attorney will be able to explain the difference between this trust and a revocable trust.

One clear warning: if you have already created a revocable trust to protect your estate and it is not funded, you may feel like it would be most convenient to use this already-existing trust for your inheritance. That would not be wise. You should have a completely different trust created for the inherited property, and this would also be a wise time to remember to fund the existing trust.

Using a revocable trust this way will also require customized language in your Last Will, as you’ll want standard language in the Last Will to reflect the trust being separate from your other marital property. If you would like to read more about divorce protection, please visit our previous posts. 

Reference: Forbes (April 13, 2022) “Revocable Inheritance Trust: Inexpensive Divorce Protection”

Photo by cottonbro

 

The Estate of The Union Episode 14: Needle in a Haystack - Finding the right Caregiver is out now!

 

Read our Books

Addressing Financial Issues in a Remarriage

Addressing Financial Issues in a Remarriage

When it comes to addressing financial issues in a remarriage, couples should look at the past.  This should include the way in which each person handled finances, and their pre-marital liabilities and assets, along with the present (e.g., new benefit options) and the future. This means how they’ll handle finances as a unit or protect themselves and loved ones in case of death or divorce.

CNBC’s recent article entitled “Remarrying? Here are financial considerations to keep in mind before saying ‘I do’” says that it’s important to release any financial skeletons from the closet. Here are some smart financial moves for new parents:

It’s critical that blended families have similar talks with their children. The children were most likely brought up in different financial circumstances, so it’s important to talk as a family about new financial expectations.

After the prospective spouses identify their collective financial situation, there are a few topics to consider. For instance, if you were previously married for more than 10 years and collecting Social Security benefits on your ex-spouse’s account, you may forfeit those payments if you remarry.  Your new combined income may also result in a higher tax bill. This is sometimes called a “marriage penalty.”

Moreover, financial communication is a crucial best practice to achieve financial success in a relationship. After you remarry, look at the impact on benefits.

Marriage is a recognized life event, so you may be allowed to change your insurance options outside the regular autumn time window.

You should also be aware that if you were previously divorced and getting substantially discounted insurance via the healthcare.gov exchange, when you remarry, your insurance costs may go up if your joint income goes up.

It’s also smart to consider protecting pre-marital assets that were in your name only. You should consult an experienced estate planning attorney prior to addressing financial issues in a remarriage. They may advise against commingling some or all assets, and suggest a trust, segregating pre-marital assets from marital assets, to protect you in the event of divorce.

Estate planning is vitally important, if you have a new family with children. These are the documents that will take care of the people you love. If you would like to learn more about remarriage issues in estate planning, please visit our previous posts. 

Reference: CNBC (March 7, 2022) “Remarrying? Here are financial considerations to keep in mind before saying ‘I do’”

Photo by Irina Iriser

 

The Estate of The Union Episode 14: Needle in a Haystack - Finding the right Caregiver is out now!

 

Read our Books

A second marriage can complicated estate planning

A Second Marriage can complicate Estate Planning

In first marriages, working together to raise children can solidify a marriage. However, in a second marriage, the adult children are in a different position altogether. If important estate planning issues are not addressed, the relationship between the siblings and the new spouses can have serious consequences, according to a recent article titled “Into the Breach; Getting Married Again?” from the Pittsburgh Post-Gazette. A second marriage can complicated estate planning.

Chief among the issues center on inheritances and financial matters, especially if one of the parties has the bulk of the income and the assets. How will the household expenses be shared? Should they be divided equally, even if one spouse has a significantly higher income than the other?

Other concerns involve real estate. If both parties own their own homes, in which house will they live? Will the other home be used for rental income or sold? Will both names be on the title for the primary residence?

Planning for incapacity also becomes more complex. If a 90-year-old man marries a 79-year-old woman, will his children or his spouse be named as agents (i.e., attorneys in fact) under his Power of Attorney if he is incapacitated? Who will make healthcare decisions for the 79-year-old spouse—her children or her 90-year-old husband?

There are so many different situations and family dynamics to consider. Will a stepdaughter end up making the decision to withdraw artificial feeding for an elderly stepmother, if the stepmother’s own children cannot be reached in a timely manner? If stepsiblings do not get along and critical decisions need to be made, can they set aside their differences to act in their collective parent’s best interests?

The matter of inheritances for second and subsequent marriages often becomes the pivot point for family discord. If the family has not had an estate plan created with an experienced estate planning attorney who understands the complexities of multiple marriages, then the battles between stepchildren can become nasty and expensive.

Do not discount the impact of the spouses of adult children. If you have a stepchild whose partner feels they have been wronged by the parent, they could bring a world of trouble to an otherwise amicable group.

The attorney may recommend the use of trusts to ensure the assets of the first spouse to die eventually make their way to their own children, while ensuring the surviving spouse has income during their lifetime. There are several trusts designed to accomplish this exact scenario, including one known as SLAT—Spousal Lifetime Access Trust.

Discussions about health care proxies and power of attorney should take place well before they are needed. Ideally, all members of the family can gather peacefully for discussions while their parents are living, to avoid surprises. If the relationships are rocky, a group discussion may not be possible and parents and adult children may need to meet for one-on-one discussions. However, the conversations still need to take place.

A second marriage can complicated estate planning. Second marriages at any age and stage need to have a prenuptial and an estate plan in place before the couple walks down the aisle to say, “I do…again.” If you would like to learn more about blended families and estate planning, please visit our previous posts. 

Reference: Pittsburgh Post-Gazette (March 1, 2022) “Into the Breach; Getting Married Again?”

Photo by Trung Nguyen

 

The Estate of The Union Episode 14: Needle in a Haystack - Finding the right Caregiver is out now!

 

Read our Books

What are the Advantages of Modern Directed Trust?

What are the Advantages of Modern Directed Trust?

Many families use their estate, gift and generation-skipping transfer tax exemptions to fund a flexible modern trust for non-tax reasons, explains an article “Trust Planning in Unprecedented Times” from Wealth Management. Future uncertainty is one of the reasons, which seems keenly appropriate today. What are the advantages of a modern directed trust?

Passing family values as well as wealth to future generations is an important part of estate planning for many families. A directed trust can accomplish both goals, through the participation of family members and advisors in the directed trust’s distribution committee (DC). The DC decides how trust income and principal will be distributed and directs the administrative trustee accordingly.

Any distribution over and above the health, education, maintenance and support of beneficiaries needs to be considered from a tax-sensitive perspective, but the DC has the flexibility to make these decisions.

These modern directed trusts can also be created to allow for charitable purposes. Donations to charity from a non-charitable modern directed trusts lets the family express its social responsibility, while obtaining unlimited income tax deductions to the trust.

There are instances where knowledge of a trust is kept from beneficiaries or other family members, if they lack the financial maturity or don’t understand or comply with family values. Other reasons to keep a trust quiet are asset protection, divorce, ID theft and similar issues. In many modern trust states, the trust can remain quiet, even after the grantor has died or becomes incapacitated.

Modern directed trusts provide protection against divorce. Often the trust’s main protection is the use of a spendthrift provision, which prevents the assignment of a beneficiaries’ interests in an irrevocable trust before the interest is distributed. There are exceptions to the spendthrift clause, and alimony is one of them. In recent cases, courts have disregarded the spendthrift clause when exceptions are involved, especially in cases of divorce.

Litigation can be a problem for trusts. One of the advantages of a modern directed trust is the excellent asset protection it provides when trust discretionary interests are not defined as property or an enforcement right. Many trusts have clauses providing a court to award legal fees and costs to the winning party. The trustee may be reimbursed for attorney’s fees if the plaintiff loses, a significant discouragement for embarking on litigation against a modern trust.

COVID-19 has reframed how often people think about their mortality, which has fueled interest in creating trusts to protect family assets and heirlooms. A “purpose trust” doesn’t have beneficiaries, but is created to care, protect and preserve an asset, either for an extended period of time or even perpetuity. Assets typically placed in a purpose trust include gravesites, antiques, art, jewelry, royalties, digital assets, land, property, buildings and vacation homes.

The uncertain times in which we live call for unprecedented estate planning. Modern directed trusts are a way to preserve wealth across generations with flexibility. Regardless of what changes to federal estate, gift or generation skipping trusts may come in the future, trusts make sense. If you would like to learn more about asset protection, please visit our previous posts. 

Reference: Wealth Management (Jan. 10, 2022) “Trust Planning in Unprecedented Times”

Photo by RODNAE Productions from Pexels

 

The Estate of The Union Episode 13: Collision Course - Family Law & Estate Planning

 

www.texastrustlaw.com/read-our-books

The Estate of The Union Season 2 premiere - Millennials’ Mysteries Uncovered Part 2

The Estate of The Union Episode 13: Collision Course – Family Law & Estate Planning

The Estate of The Union Episode 13: Collision Course – Family Law & Estate Planning is out now!

There is a dangerous intersection at the corner of Estate Planning and Divorce. In this podcast of the Estate of the Union, Brad Wiewel interviews Jimmy Vaught, a Board certified Family Lawyer with over 40 years of experience, about how to avoid a potential devastating disaster at that corner. Blended families are very common now. With them comes the often complicated situation between loved ones when someone dies. Brad and Jimmy discuss the common pitfalls and share some tips on how to avoid a collision.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand.

It is Estate Planning Made Simple!

To learn more about Jimmy Vaught and the Vaught Law Firm, PC, please visit his website:

 

https://austindivorcelawyer.com/

 

The Estate of The Union episode 13: Collision Course – Family Law & Estate Planning can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. Please click on the link below to listen to the new installment of The Estate of The Union podcast. You can also view this podcast on our YouTube page. The Estate of The Union Episode 13 out now. We hope you enjoy it.

http://

Texas Trust Law/Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

www.texastrustlaw.com/read-our-books

evaluate your estate planning during a divorce

Evaluate your planning during Divorce

Divorce is never easy. Adding the complexities of estate planning can make it harder. However, it still needs to be included during the divorce process, says a recent article entitled “How to Change Your Estate Plan During Divorce from the Waco Tribune-Herald. It is smart to evaluate your estate planning during a divorce.

Some of the key things to bear in mind during a divorce include:

Is your Last Will and Testament aligned with your pending divorce? The unexpected occurs, whether planning a relaxing vacation or a contentious divorce. If you were to die in the process, which usually takes a few years, who would inherit your worldly goods? Your ex? A trust created to take care of your children, with a trusted sibling as a trustee?

Are your beneficiary designations up to date? For the same reason, make sure that life insurance policies, retirement accounts and any financial accounts allowing you to name a beneficiary are current to reflect your pending or new marital status.

Certain changes may not be made until the divorce is finalized. For instance, there are laws concerning spouses and pension distribution. You might not be able to make a change until the divorce is finalized.  If your divorce agreement includes maintaining life insurance for the support of minor children, you must keep your spouse (or whoever is the agreed-upon guardian) as the policy beneficiary.

Once the divorce decree is accepted by the court, the best path forward is to have a completely new will prepared. Making a patchwork estate plan of amendments can be more expensive and leave your estate more vulnerable after you have passed. A new will revokes the original document, including naming an executor and a guardian for minor children.

The will is far from the only document to be changed. Other documents to be created include health care directives and medical and financial powers of attorney. All of these are used to name people who will act on your behalf, in the event of incapacity.

It’s a good idea to update these documents during the divorce process. If you are in the middle of an ugly, emotionally charged divorce, the last person you want making life or death decisions as your health care proxy or being in charge of your finances is your soon-to-be ex.

Talk with your estate planning attorney about evaluating your planning during the divorce process. They will be able to make further recommendations to protect you, your children and your estate during and after the divorce. If you would like to read more about estate planning during and after divorce, please visit our previous posts. 

Reference: Waco Tribune-Herald (Oct. 18, 2021) “How to Change Your Estate Plan During Divorce”

Photo by cottonbro from Pexels

 

 

Estate of The Union Episode 11-Millennials’ Mysteries Uncovered!

 

www.texastrustlaw.com/read-our-books

 

What a will can and cannot do

What a Will Can and Cannot Do

Everyone needs a will. A last will and testament is how an executor is named to manage your estate, how a guardian is named to care for any minor children and how you give directions for distribution of property. However, not all property passes via your will. You’ll want to know what a will can and cannot do, as well as how assets are distributed outside of a will. This was the topic of “The Legal Limits of Your Will” from AARP Magazine.

Retirement and Pension Accounts

The beneficiaries named on retirement accounts, including 401(k)s, pensions, and IRAs, receive these assets directly. Some states have laws about requiring spouses to receive some or all assets. However, if you don’t keep these beneficiary names updated, the wrong person may receive the asset, like it or not. Don’t expect anyone to willingly give up a surprise windfall. If a primary beneficiary has died and no contingency beneficiary was named, the recipient may also be determined by default terms, which may not be what you have in mind.

Life Insurance Policies.

The beneficiary designations on an insurance policy determine who will receive proceeds upon your death. Laws vary by state, so check with an estate planning attorney to learn what would happen if you died without updating life insurance policies. A simpler strategy is to create a list of all of your financial accounts, determine how they are distributed and update names as necessary.

Note there are exceptions to all rules. If your divorce agreement includes a provision naming your ex as the sole beneficiary, you may not have an option to make a change.

Financial Accounts

Adding another person to your bank account through various means—Payable on Death (POD), Transfer on Death (TOD), or Joint Tenancy with Right of Survivorship (JTWROS)—may generally override a will, but may not be acceptable for all accounts, or to all financial institutions. There are unanticipated consequences of transferring assets this way, including the simplest: once transferred, assets are immediately vulnerable to creditors, divorce proceedings, etc.

Trusts

Trusts are used in estate planning to remove assets from a personal estate and place them in safekeeping for beneficiaries. Once the assets are properly transferred into the trust, their distribution and use are defined by the trust document. The flexibility and variety of trusts makes this a key estate planning tool, regardless of the value of the assets in the estate.

Take the time to sit down with an experienced estate planning attorney who help you understand the limitations of what a will can and cannot do. If you would like to read more about wills and how they are structured, please visit our previous posts. 

Reference: AARP Magazine (Sep. 29, 2021) “The Legal Limits of Your Will”

The Estate of The Union Episode 10

 

www.texastrustlaw.com/read-our-books

update estate plan after divorce

Update Estate Plan after Divorce

Don’t forget to update your estate plan after a divorce, or you risk your assets being distributed to your ex-spouse when you pass away.

Investopedia’s recent article “Here’s what you need to remove and add to your will when your marriage is over,” says that many states have laws that, after a divorce, automatically revoke gifts to a former spouse listed in a will. There are states that also revoke gifts to family members of a former spouse. If you’re in a state that has such a law, gifts to former stepchildren would also be revoked after your divorce.

Most married people leave everything in their will to their surviving spouse. If that’s the way that your will currently reads, be certain that you change your ex as a beneficiary and add a new beneficiary. Remember that many types of assets are passed outside of a will, such as life insurance, 401k’s and other investments. Therefore, you must change the beneficiary designation on those documents.

Property Transfers. Update your will for any property gained or lost during the divorce. If you have assets that are specifically identified in your will, be sure to update them for any changes that may have happened because of the divorce.

The Executor of your Will. If your ex-spouse is named in your will as your executor, you should change this.

A Guardian for Minor Children. If you have children with your ex-spouse, you will want to update your will to appoint a guardian, if you and your ex-spouse pass suddenly at the same time. If you die, your children will likely be raised by your ex-spouse.

The Best Way to Change Your Will After Divorce. It’s easy: tear up your old will (literally) and begin again because you probably left everything or almost everything to your spouse in your original will. Just because you’re legally married until a judge signs a divorce decree, you can still modify your will or estate plan at any time. Ask an estate planning attorney because there some actions you can’t take until the divorce is final.

Can an Ex Challenge Your Will? An ex-spouse or even ex-de facto partner can challenge the will of a former spouse or partner. Whether the challenge will be successful will depend on the court’s interpretation of a number of factors.

A divorce is one of those times in life when you cannot forget to update your estate plan. There could be significant consequences to your inaction. Sit down with an estate planning attorney right away to review your plans. If you would like to learn more about estate planning and divorce, please visit our previous posts.  

Reference: Investopedia (Sep. 14, 2021) “Here’s what you need to remove and add to your will when your marriage is over”

Photo by Ketut Subiyanto from Pexels

 

The Estate of The Union Episode 10

 

www.texastrustlaw.com/read-our-books

Businesses should have a buy-sell agreement

Businesses should have a Buy-Sell Agreement

Businesses should have a buy-sell agreement to protect the owners, their families, employees and the company. Without a buy-sell agreement or succession plan, any company is at risk, notes a recent article titled “Why does your business need a buy-sell agreement?” from the Philadelphia Business Journal.

Many business owners are reluctant to recognize the possibility of their becoming disabled or dying, so they put off creating a buy sell agreement. However, as we all know, unexpected events happen and it’s always better to be prepared.

A buy-sell agreement offers protection first by establishing what type of triggering events could happen and defining the terms and conditions for how shareholders will enter and exit their ownership of the business.

Companies often have a buy-sell agreement stuck in a file drawer from ten or twenty years ago. Chances are that big changes have taken place in the business and the old agreement is no longer relevant. The day-to-day operations of a business are pressing, and there’s never enough time to get around to it. However, when the unexpected occurs, shareholders are left to negotiate among themselves during the worst possible time.

A well-drafted buy-sell agreement for a business should address the most common events: death, disability, divorce, personal bankruptcy, voluntary termination, retirement and involuntary separation. The agreement should clearly state the percentage and type of ownership, how shares are valued and how any insurance proceeds are to be handled. Without knowledge of the value and terms of payment, there’s no way to provide protection for a triggering event.

Once the value of the company and its shareholders is defined, it may become clear that a business needs to close a valuation gap.

The intentions for the future of the business can also be clarified through this process. Some provisions to consider are:

  • How to notify other shareholders, in the event of a voluntary termination.
  • Trailer provisions to protect exiting shareholders, in the event of a subsequent liquidity event.
  • Discounts on value or extended payment terms for non-compliance of notification provisions.
  • Insurance portability provisions to allow existing shareholders to reassign beneficiary designations (once payments owed to the exiting shareholder have been made).

Businesses should have a buy-sell agreement. They are dynamic entities with frequent changes, so buy-sell agreements should be reviewed and updated in the same way that an estate plan needs to be updated—every three or four years. If you would like to read more about buy-sell agreements, and other succession planning topics, please visit our previous posts. 

Reference: Philadelphia Business Journal (Sep. 1, 2021) “Why does your business need a buy-sell agreement?”

Photo by fauxels from Pexels

The Estate of The Union Episode 9 out now

 

www.texastrustlaw.com/read-our-books

Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
Categories
View Blog Archives
View TypePad Blogs