Dividing Property for Married or Maybe-Not-So-Married Spouses

When a marriage doesn’t work out, the couple that wishes to become “un-married” must undergo the legal process of divorce. While a legal separation and divorce can sever the legal ties that bind a couple, very often couples neglect to tidy up and make the separation or divorce final. In that case, says The Pasadena / San Gabriel Valley Journal’s article “Ties that Bind,” they are still married.

The couple may be married in name only, or even estranged from each other, but legally, they are still married, which means that the law still sees them as a married couple as it relates to their rights and obligations towards each other and their property.

Surprisingly, there are many instances where a person dies and after the funeral, when the estate is being settled, it is revealed that the couple was still married. The decedent may have separated from his or her spouse years ago, but they never got legally divorced. Sometimes this is because neither party really wants to bring things to a conclusion. In other instances, they may not want to devote the time or resources to the divorce process, which can be both expensive and painful.

Many of us have also heard of cases where the couple was contemplating divorce, after recognizing that the marriage was no longer working, and one of the spouses died before the legal separation or divorce was obtained.

It is important to remember that marriage is a key factor when it comes to inheritance rights.

The law does not make a distinction between couples who been have separated for decades and those who are happily married. The only question that matters in the eyes of the courts is what the deceased spouse’s status was on the day that she or he died. There are only three answers to that question:

  • Married
  • Divorced
  • Legally Separated

Unless a person has done estate planning and has a will and trust, the spouse is entitled to receive a certain amount of their property. If the decedent lived in a state with community property, like California, the spouse is entitled to receive all the community property (which includes anything earned or acquired during the course of the marriage) and a portion of the separate property.

One of the first things a couple contemplating divorce should do immediately is have their estate plan done, especially in a community property state. This will allow them to make decisions about inheritance, just in case one of them dies before the proceedings are completed.

Marital status is also something that matters in the case of life and death decisions. If a person has a serious accident or becomes ill, a not-yet-divorced spouse may be the only person that the medical team will speak with. When divorce is on the horizon, part of estate plan concerning incapacity must also be addressed: an Advanced Care Directive, also known as a Living Will.

It often takes years to complete a divorce, and many things can happen in the interim. Unless you want your estranged spouse or someday-to-be ex-spouse making decisions and sharing property with you, sit down with an estate planning attorney to outline your wishes and make sure you are protected, even before the divorce is finalized.

Reference: The Pasadena / San Gabriel Valley Journal (Aug. 7, 2019) “Ties that Bind”

How Do I Have the Financial Talk with My Parents?

GOBankingRates recently released a survey that found that 73% of Americans haven’t had conversations with aging parents about their finances. Moreover, 22% of the survey’s respondents said they never plan to have this talk with their parents, because they believe their finances are none of their business.

That’s a really big mistake.

Forbes’ recent article, “What You Don’t Know About Your Parents’ Finances Could Ruin Yours” says that if you don’t take the time to chat to your parents about their finances, your own finances could be affected. This is because there’s a good chance you’ll have to get involved with your parents’ financial lives, as they age. This can impact your own financial well-being, if you aren’t ready for that task.

As Americans are living longer, there’s an increased risk of health issues, which can lead to significant financial consequences. About 80% of older adults have at least one chronic condition like heart disease, diabetes, dementia or Alzheimer’s disease. Alzheimer’s disease is becoming increasingly prevalent as people live longer. The number of Americans living with Alzheimer’s disease is expected to more than double to 14 million by 2050, according to the Alzheimer’s Association.

However, just 5% of adults ages 55 to 60 have long-term care insurance, and only 11% of adults 65 and older have it. Long-term care insurance helps cover the cost of care in an assisted-living facility, nursing home or even at home. Medicare doesn’t pay for this sort of care–which easily runs well over $8,000 a month.

If you and your parents don’t talk about how to pay for any care they might need, you could become your parents’ long-term care plan. That could mean you pay these expenses or stop working to help care for a parent.

Those who haven’t had detailed discussions with their parents about their finances can anticipate facing a larger burden than those who have been able to help their parents start managing their money better, by having discussions with them.

If you have siblings, it is important for all the children to be on the same page regarding the parents’ finances and long term care plans. This will help everyone involved be better prepared.

Another important reason to talk to your parents about their finances sooner rather than later, is to see if they have a will, power of attorney and living will or advance health care directive. If they don’t, consult with an experienced estate planning attorney. The sooner you address these issues, the better.

Reference: Forbes (July 17, 2019) “What You Don’t Know About Your Parents’ Finances Could Ruin Yours”

Why Is a Revocable Trust So Valuable in Estate Planning?

A revocable trust is sometimes an investment that people are hesitant to make, but they are worth the time and money. There’s quite a bit that a trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settlor or grantor), who turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (also known as an inter vivos trust) where the grantor creates a trust, funds it, manages it by themselves, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, they will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or they can appoint a trust company to act for them.
  • Incapacity. A trusted spouse, child, or friend can be named as trustee to care for and represent the needs of the grantor/beneficiary. The trustee will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship or conservatorship. This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this. If and when the grantor has recovered, they can resume the duties as trustee.
  • Estate Planning. A revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time. When creating your estate plan, make sure to think of more than just the trust. Ask your attorney about how the trust fits in with the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Even though a trust is something that most people should consider, not anyone can create one. Your trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

What are the “Must Have” Estate Planning Documents?

What do Aretha Franklin, Kurt Cobain, and Prince have in common? Aside from being famous and talented, each of these stars passed away without an estate plan. All three had the money and attorneys to draft a proper estate plan, but for whatever reason, they didn’t draft one. It’s a good lesson to not neglect your estate plan.

Motley Fool reports in the article, “3 Must-Have Estate Planning Documents To Get Done This Year,” that dying without an estate plan creates numerous problems for your family. If there are no legal instructions in place, probate law automatically dictates the distribution of your assets and selection of guardians for your minor children, which can cause problems or be contrary to your wishes. Regardless of your personal situation, you should think about creating these three important estate planning documents:

Trust. A trust is used to distribute your estate according to your instructions with more privacy, fewer costs, and less time than using just a will. A trust can say how much and what type of asset each heir will receive, to minimize family fighting after your death. If you have young children, you can designate guardians in your trust who will be in charge of their care and take care of any assets left to them. If you die without a trust, the probate judge will order who becomes their guardian and takes care of their money.

You also need a trust to make charitable bequests, to expedite the probate court process and to reduce or eliminate estate taxes. When you draft your trust, you’ll appoint trusted people to serve as the executor and the trustee.

Advance Health Care Directive. An advance health care directive (sometimes called a living will) can take effect while you are still alive. This is a legal document that sets out your instructions for medical treatment if you become unable to communicate, such as whether or not you want to be placed on life support. An advance health care directive can relieve the emotional burden from your family of having to make difficult decisions because you’ve already communicated your wishes through this document.

Power of Attorney. This legal document helps in the event you’re incapacitated or in the hospital in an unresponsive state. A power of attorney gives the individual you designate, also known as an agent, the authority to transact financial and legal matters on your behalf. Set up a power of attorney, before you need it. If you don’t and you’re unable to make decisions, your family may have to petition the court to get those powers, which costs time and money.

Estate planning is a huge favor that you’re doing for your family. Get these three legal documents in place.

Reference: Motley Fool (February 18, 2019) “3 Must-Have Estate Planning Documents To Get Done This Year”

No Matter How Young—Or Young at Heart—You Need an Estate Plan

Two out of every five people over 45 years old don’t have a prepared will. Many of them have not thought about estate planning. It doesn’t take that much to do the planning necessary to help family members who survive you, according to the Lebanon Democrat’s article “End-of-life planning beneficial no matter your age.”

The planning you do will also help your family avoid the nasty disagreements that so often happen, when no one has been told what is going to occur after a parent dies. It will help your loved ones who may not know what you would have wanted after you pass: a funeral, a big memorial service, graveside services only or even cremation.

If you die without a will, which is known as dying “intestate,” all of your assets, from bank accounts to your favorite table saw could be awarded to someone, based on the judgment of a court-appointed administrator. This person won’t know that you had a nephew who you’d promised your woodworking tools and that would include the table saw.

Start by meeting with an estate planning attorney in your community. The laws that govern estate planning are based on your state’s law, so an attorney from another state may not be familiar with the big or small differences in your state versus another state. The same goes for online wills: unless they are reviewed by an attorney in your state, you won’t know if they are valid. Your family will find out, after you have passed, and they can’t make changes. That’s probably not how you want to be remembered.

If there’s a senior citizen in the family, ask them if they have prepared any estate planning documents. It’s best to do this, while they are still competent. You never know what tomorrow might bring–and that holds true for people of all ages. Many people become incapacitated unexpectedly, at all ages and stages of life. Prior planning prevents a bad situation from becoming much worse.

Here’s what your estate planning attorney will speak with you about:

Who do you want to be in charge of your estate? It should be someone you trust without reservation. That person will become your executor or trustee, when you die.

Who do you want to receive certain possessions? We tend to think about who will inherit a house or a car, but many families argue over sentimental possessions, like jewelry or art. Epic battles have occurred over items with little monetary value.

Your estate planning attorney will ensure that you also have an advance health care directive (also known as a living will), since you’ll need this, if you have to go to the hospital or long-term care facility and are not able to speak up for yourself.

Update your estate plan as time goes on. Families grow and shrink, and your estate plan needs to reflect your changing life. What if the person you named as executor or trustee dies, or moves far away? You’ll want to make sure there are people who can carry out the responsibilities you want.

Don’t forget to tell your executors/trustees that they have been named and make sure they are up for the tasks. If you have an argumentative family, will your executor/trustee be able to stand up to them? Personality is as important as understanding legal and financial issues.

Your estate planning attorney will be able to guide you through any rough spots, or issues you might be struggling with. It is better for you and the ones you love to have an estate plan, regardless of your age or health. Life changes come quickly, and it’s best to be prepared.

Reference: The Lebanon Democrat (Jan. 18, 2019) “End-of-life planning beneficial no matter your age”

Your Most Important Asset Is Not Your Bank Account

It’s hard to think about getting older. When something is challenging, the usual human response is to procrastinate. We can’t slow down the aging process, but we can prepare for it. One of the things that needs to be done to prepare for aging, is discussed in the article from The Mercury titled “REINVENTING RETIREMENT: Your most important asset—it’s not what you think.” Good health is definitely important, but there’s something else to consider: your independence.

We hate to think about becoming dependent upon others, but that is often what occurs with aging. This is an asset that needs to be planned for and managed, like any other. Here are some tips for each decade:

Health Care Directives in Your 50s. You need to have a will and you need to have it updated, as the years go by. However, in mid-life you need to make sure to have an advance healthcare directive and power of attorney. Estate planning is a tool used to protect your independence and your wishes as you grow older. These two documents are a critical part of your estate plan. A health crisis or an accident can happen to anyone, but planning can ensure that your wishes are followed. Put your wishes on paper, with an attorney, so that they are enforceable. Just telling someone what you want, is not going to do it.

Home and Belongings in Your 60s. The kids are out of college and have their own careers and families. Do you still need that big house? Downsizing could bring you tremendous freedom now. Yes, you have to go through all of your belongings which is a lot of work. However, consider how your life would change if you had less stuff, a smaller home, and lower bills? This one move could change how your retirement succeeds—or fails.

Stay Connected in your 70s and 80s. Connecting with your community is critical at this time of life. When you are actively engaged with your community, you’ll be busy with activities that you enjoy. You will hopefully be making contributions that draw on your years of experience and knowledge. Hope and having a purpose in life is not just for the young. The healthiest and most independent lives are lived when people are engaged with other people, with a life that has meaning and purpose.

Planning for your retirement is about much more than your bank account. Speak with an estate planning attorney to make sure that your estate plan protects your independence, conveys your wishes and plans the coming stages of your life to be as rewarding—or maybe more fulfilling—than the past.

Reference: The Mercury (Feb. 10, 2019) “REINVENTING RETIREMENT: Your most important asset—it’s not what you think”

Why Do Singles Need These Two Estate Planning Tools?

Morningstar’s article, “2 Estate-Planning Tools That Singles Should Consider” explains that a living will, or advance medical directive, is a legal document that details your wishes for life-sustaining treatment. It’s a document that you sign when you’re of sound mind and says you want to be removed from life supporting measures, if you become terminally ill and incapacitated.

If you’re on life support with no chance of getting better, you’d choose to have your family avoid the expense and stress of keeping you alive artificially.

Like a living will, a durable power of attorney for healthcare is a legal document that names an agent to make healthcare decisions for you, if you are unable to make them yourself.

A durable power of attorney for healthcare can provide your instructions in circumstances in which you’re not necessarily terminally ill, but you are incapacitated.

When selecting an agent, find a person you trust enough to act on your behalf when you’re unable. Let this person know exactly how you feel about blood transfusions, organ transplants, disclosure of your medical information and other sensitive topics that may arise, if you’re incapacitated.

A power of attorney eliminates any confusion, especially if this person is someone other than your spouse. Your doctors will know exactly who the decision-maker is among your relatives and friends.

These two documents aren’t all that comprise a fully comprehensive estate plan. Singles should regularly make certain that the beneficiary designations on their checking and retirement accounts are up to date.

You should also consider your life insurance needs, especially if you have children and/or a mortgage.

It is also important to understand that a living will doesn’t address the issues of a will. A will ensures that your property is distributed after your death, in accordance with your wishes. Ask for help from an experienced estate planning attorney.

These two documents—a living will and a durable power of attorney—can help ensure that in a healthcare emergency, any medical and financial decisions made on your behalf are in accordance with what you really want. Speak with to an estate-planning attorney in your state to get definitive answers to your questions.

If you are in California, these two documents are often combined and are called an Advance Health Care Directive. 

Reference: Morningstar (April 23, 2019) “2 Estate-Planning Tools That Singles Should Consider”

What Are the Six Most Frequent Estate Planning Mistakes?

It is a grim topic, but it is an important one. Without a legal will in place, your loved ones may spend years stuck in court proceedings and spend a lot in legal fees to settle your estate. The San Diego Tribune writes in its recent article, 6 estate-planning mistakes to avoid, that without a plan, everything is more stressful and expensive. Let’s look at the top six estate planning mistakes that people need to avoid:

No Plan. Regardless of your age or financial status, it’s critical to have a basic estate plan. This includes crafting powers of attorney for both healthcare and finances and a will.

No Discussion. Once you create your plan, tell your family. Those you’ve named to take care of you, need to know what you’ve decided and where to find your plan.

Focusing Only on Taxes. Estate planning can be much more than just about tax avoidance. There are many other reasons to create an estate plan that have nothing to do with taxes, like charitable giving, special needs planning for a family member, succession planning in the event of incapacity and planning for children of a prior marriage, to name just a few.

Leaving Assets Directly to Children. If you leave assets directly to your children or grandchildren under age 18, it can cause unintended custodian or guardianship issues. Minors can’t own legal property, so a guardian will be appointed by the court to manage the property for them, until they reach age 18. If you don’t name a guardian, the court will appoint one for you and that person may have very different ideas about how the account should be managed and invested.

Making Mistakes with Ownership and Property Titles. With many blended families, you may want to preserve assets from an inheritance as your own separate property or from a prior marriage for your children. There are many tax consequences and control issues in blended families about which you may not be aware.

Messing Up Your Trust. Many people don’t properly fund or update their trusts. An unfunded trust doesn’t do anyone any good. Assets that aren’t titled in the name of the trust don’t avoid probate.

Finally, be sure to review your estate plan regularly, as your circumstances change.

Reference: San Diego Tribune (April 18, 2019) “6 estate-planning mistakes to avoid”

What Are the Five “Must Have” Estate Planning Documents?

WTHR 13’s recent article, “The 5 legal documents every adult should have” lists the five “must have” estate planning documents involved in estate planning.

  1. General Durable Power of Attorney. This document states who you want to make decisions if you’re unable to do so for yourself. Without it, your family may have to petition the courts to become your legal guardian/conservator, which can be time consuming and expensive. A power of attorney allows the person whom you select, to pay your mortgage or rent and your bills.
  2. Health Care Power of Attorney. (Also known as an Advance Healthcare Directive) This document plans for the situation, if you are unable to make your own health care decisions. You name someone you trust, like family members or friends, to do this on your behalf.
  3. Will. This says that when you pass away, here’s what I want to happen. A will states who will get your assets after your death. If you don’t have a valid will in place, the state laws of intestacy will govern what will happen to your estate—which may not be what you want.
  4. Living Will. This is the document in which you state your instructions for end-of-life care, such as life support. This document is used to make certain that your family and physicians know what you want your end-of-life care to be. A living will is much different than a will and many times may be incorporated into the Advance Healthcare Directive.
  5. Revocable Living Trust. This document can be important, if you’re a parent with young children and would like your assets passed down properly to your children if you die. Typically, if children are under 18, they’re legally minors and can’t receive assets. A trust can help coordinate the receiving your property and avoid probate on your death.

An experienced estate planning attorney can help you with the creation of these documents, while creating an overall plan so that your wishes are followed, your legacy is protected and your family is secure.

Reference: WTHR 13 (April 17, 2019) “The 5 legal documents every adult should have”

What Should My Fiancé and I Discuss About Finances Before We Say “I Do”?

If you’re older and remarry, you may have more assets and you probably have children. That’s different than a first marriage, where people often enter as financial equals. In subsequent unions, situations are more complicated—and the stakes are higher. You should protect your money in the event of divorce and protect your children in the event of your death.

Barron’s recent article, “How to Manage Your Money When You’re Remarrying,” says the subject of money should be easier this time around. Money talk might have been taboo going into your first marriage, but experience—and the battle wounds of divorce—tend to make this dialog much easier.

The best strategy for navigating the financial side of remarriage is to be direct and give yourself plenty of time before the wedding to work out the details. All good financial plans start with a broader discussion that has more to do with identifying and setting goals, than it does about dollar signs.

Consider what you hope to achieve individually and as a couple over the next year, five years, decade, and so on. Discuss your priorities and intentions, be specific, and write it all down. Your conversation will be the groundwork for the specific financial planning decisions the two of you will need to make, when it’s time to formalize your plans for merging finances or—as the case may be—keeping them separate.

Prenuptial agreements, or “prenups,” are becoming more frequently used by millennials because they are marrying later and bringing more assets and debt to the marriage. In the case of remarriage, a prenup should be strongly considered by most couples. This legally-binding agreement details how assets and liabilities will be divided, in the event of divorce.

Many experts suggest keeping separate checking, savings, and investment accounts—but setting up joint accounts for shared lifestyle expenses. Having a joint account removes the need for constant discussion about how you’ll divide expenses. Create a monthly joint budget and agree on the fairest way to split it. Some couples divide it down the middle, while others base it on a percentage of their respective incomes.

You don’t need to have all of your estate plans settled before the wedding but be certain to update key documents where appropriate—such as your wills, medical advance directives, retirement plan, and insurance beneficiaries.

A big trouble spot for couples remarrying—especially if there are children and grandchildren from other marriages—is how assets will be divided in the future. Without a clear estate plan, if you die first, then the assets will pass to your spouse and then to that spouse’s children, depending on the type of asset. That can be a big source of family strife—even for families who aren’t wealthy. A good solution is to set up revocable livings trusts that say exactly how you want your respective and joint assets to be distributed when you die.

Reference: Barron’s (March 2, 2019) “How to Manage Your Money When You’re Remarrying”