Estate Planning after Divorce

Divorce changes your estate plan, so make sure to update it and your beneficiary designations after the divorce.

Estate planning after divorce takes careful consideration.  Without a spouse as the center of 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, assets, bank and retirement accounts. For example, in Texas, 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 and avoiding difficulties in probating the will.

However, 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 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.  Sometimes beneficiary designations or retitling of assets occur during the divorce process, but often they occur after resolving the divorce and aren’t complete by the time an estate planning attorney needs to be involved.

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.  Many clients often try to coordinate their estate plans with their ex-spouses to ensure their mutual children are provided for.

If the divorcing parents have minor children, they must choose a guardian to care for the children, in the event that both parents pass away.  This was always true, but the need for it is heightened if parents aren’t on the same page.

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”

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Things You Should Not Keep in Your Safe Deposit Box

A safe deposit box may not be the best place to keep some items.
A safe deposit box may not be the best place to keep some items.

A safe deposit box isn’t a smart choice for everything. Kiplinger’s recent article entitled “9 Things You’ll Regret Keeping in a Safe Deposit Box” advises that there are some items you might not want to lock away in your bank, which isn’t open nights, holidays, or weekends. During this pandemic, hours of operation for many businesses are reduced. Some financial institutions have temporarily closed some locations. There are other banks that require an appointment for in-branch services, like accessing your safe deposit box. This could create a headache if you’re trying to retrieve important documents or items when you need them.

Here are some items you should store elsewhere, because may need to access them more often or on short notice.

Cash. Keeping a large amount of cash in a safe deposit box isn’t a good idea. If you need it at a time when the bank is closed, you’re out of luck. In addition, the cash may lose its buying power over time because of inflation. You may also find that some banks don’t allow cash in a safe deposit box. Finally, cash in a safe deposit box isn’t protected by the FDIC. To have FDIC insurance (covering up to $250,000 per depositor per insured bank), your cash needs to be deposited in a qualifying deposit account, such as a checking account, savings account, or CD.

Your Passport.  If you need to take an emergency trip, you would not be able to pick up your passport during non-banking hours. If your travel requires a passport, there’s not much you can do about those calls in the middle of the night requiring you to travel immediately.

The Original of Your Will. It may not be a good idea to keep your original will in a safe deposit box because after your death, the bank may require the executor named in your will to obtain a court order to access the safe deposit box. That could mean a long and expensive delay before your will is probated and your estate is settled.

Funeral and Burial Instructions. Many people execute a legal document regarding the disposition of their remains or write a letter of instruction with funeral arrangements to accompany their will. The problem is that, if these instructions are hidden away in your safe deposit box, they may not be read in time to have any effect.

Uninsured Jewelry and Collectibles. Heirloom jewelry and your valuable stamp collection and rare coins are good candidates for a safe deposit box, but they must be properly insured. The FDIC doesn’t insure safe deposit box contents, and neither does the bank, unless it’s stated in your agreement.

Any Illegal or Dangerous Items. Your bank should provide you with a list of items that are not permissible to keep in a safe deposit box. This will include things like firearms, illegal drugs and hazardous materials.

You may also be interested in https://galligan-law.com/does-your-estate-planning-include-your-online-account-passwords/.

Reference: Kiplinger (June 1, 2020) “9 Things You’ll Regret Keeping in a Safe Deposit Box”

 

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Everyone Needs an Estate Plan!

Everyone should have an estate plan
Every adult needs an estate plan, don’t wait until you have an “estate.”

Every adult, whether we have a lot of property or not, should have an estate plan.  A client once told me they didn’t need a Will because they didn’t have an “estate.”  They thought it meant substantial wealth, but estate planning is much more than that.

As we go through the many milestones of life, it’s important to plan for what’s coming, and also plan for the unexpected, even beyond the finances. An estate planning attorney works with individuals, families and businesses to plan for what lies ahead, says the Cincinnati Business Courier in the article “Estate planning considerations for every stage of life.” For younger families, having an estate plan is like having life insurance: it is hoped that the insurance is never needed, but having it in place is comforting.

For others, in different stages of life, an estate plan is needed to ensure a smooth transition for a business owner heading to retirement, protecting a spouse or children from creditors or minimizing tax liability for a family.

This is by no means an exhaustive list, but here are some milestones in life when you need an estate plan:

Becoming an adult. It is true, for most 18-year-olds, estate planning is the last thing on their minds. However, at 18 most states consider them legal adults, and their parents no longer control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All new adults need a general power of attorney and health care directives to allow someone else to step in, if something occurs.  Michael Galligan from our office gave a great presentation this summer on this topic.  See here for the video.  https://youtu.be/lZUaMVRRTms  

That can be as minimal as a parent talking with a doctor during an office appointment or making medical decisions during a crisis. A HIPAA release should also be prepared. A simple will should be considered, especially if assets are to pass directly to siblings or a significant person in their life, to whom they are not married.

Getting married. Marriage unites individuals and their assets. In community property states like Texas, it creates the new wrinkle of community property.  For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be coordinated and the new spouse can become a joint owner, primary beneficiary and fiduciary. In addition to the wills, power of attorney, healthcare directive and beneficiary designations also need to be updated to name the new spouse or a trust. This is also a time to start keeping a list of assets, in case someone needs to access accounts.

If this is not the first marriage, there is an even greater need for an estate plan because there may be children from the prior marriage to plan for.  Remember, your assets don’t go to a surviving spouse just because you are married, so you definitely need an estate plan.

When children join the family. Whether born or adopted, the entrance of children into the family makes an estate plan especially important. Choosing guardians who will raise the children in the absence of their parents is the hardest thing to think about, but it is critical for the children’s well-being. A revocable trust may be a means of allowing the seamless transfer and ongoing administration of the family’s assets to benefit the children and other family members.

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business and the owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.  You also want to address these issues.  https://galligan-law.com/the-importance-of-business-succession-planning/

If a divorce occurs. Divorce is a sad reality for more than half of today’s married couples. The post-divorce period is the time to review the estate plan to remove the ex-spouse, change any beneficiary designations, and plan for new fiduciaries. It’s important to review all accounts to ensure that any controlling-on-death accounts are updated. A careful review by an estate planning attorney is worth the time to make sure no assets are overlooked.

Upon retirement. Just before or after retirement is an important time to review an estate plan. Children may be grown and take on roles of fiduciaries or be in a position to help with medical or financial affairs. This is the time to plan for wealth transfer, minimizing estate taxes and planning for incapacity.

In sum, it is important to realize everyone needs to plan.  Don’t wait because you think you don’t need one.

Reference: Cincinnati Business Courier (Sep. 4, 2019) “Estate planning considerations for every stage of life.”

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