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Can I Change My Estate Plan During Divorce?

“At such an emotional time, more paperwork is probably the last thing you want on your to-do list. However, taking a few key steps is critical to your financial future.”

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.

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 so your attorney they know you’re going through the divorce process. They will be able to make further recommendations to protect you, your children and your estate during and after the divorce.

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

What Is Fair in a Second Marriage and Estate Planning?

“If you are planning to take another walk down the aisle, it is critical to take the time to review and revise your estate plan, especially if meaningful assets and debts are being brought into the marriage.”

The assets you and your second spouse bring into the marriage need to be carefully considered when revising your estate plan, says a recent article “Value of an Estate Plan Review With a Second Marriage” from Mondaq. If there are children from one or both partner’s prior marriages, those too need to be considered. If you plan on having children together, the estate plan needs to include this as well.

The best time to prepare this new estate plan would be before the wedding. This way, you can both go forward with the wedding and celebration with clear minds and hearts.

Start with a complete inventory of all assets and debts. List financial accounts, including investments, savings and checking accounts. Real estate and any personal assets, pensions and tax deferred retirement accounts should be included.

Review your wills, trusts, health care plans and directives, powers of attorney and any other estate planning documents at this time.

There may be assets that need to be retitled, and beneficiaries on all assets that permit designated beneficiaries should be updated at this time. Check to be sure a prior spouse is not the beneficiary of any life insurance or pensions. Any debts or liabilities that one partner brings to the marriage should be reviewed at this time. Comingling accounts and marriage will make both spouses responsible for each other’s debts, which should be discussed candidly.

Based on the inventory, one or the other partner may wish to have a prenuptial agreement to protect their individual financial interests. A prenuptial agreement may also be used to waive respective rights to each other’s property. These agreements are also used to serve as a means of retaining control of a business and defining premarital assets and debt.

When children are involved, decisions need to be made as to how assets are to be divided. Does one spouse want to leave their assets to their own children or to all of the children?

One way of addressing children in a second marriage is to create a separate marital trust to ensure that the new spouse receives the share of the assets you want them to have, while preserving your children’s inheritance. In the case of IRAs, it may be prudent to split them into separate IRAs among your spouse and children to protect the children’s inheritance.

When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. The only person who can inherit a Health Savings Account (HSA) without it becoming taxable, is your spouse. Remember to change this from your former spouse to the new spouse. Naming your children as the beneficiary would cause the account to be taxable on your death.

An estate planning attorney who has worked with second and subsequent marriages can help facilitate a discussion about structuring an estate plan. Working with a professional who knows how these situations are resolved can be a great help in getting the process started and keeping it moving forward.

Reference: Mondaq (March 2, 2021) “Value of an Estate Plan Review With a Second Marriage”

Divorce, Death and Details: Missteps can Create Estate Planning Disasters

“After the divorce, Mike logged onto the employer’s benefits system and tried, but failed, to delete Wendy as the beneficiary of his life insurance.”

This estate battle shows how small details can become huge headaches. Four courts and several years after this estate battle began, a family won a case that could have been easily prevented, as reported in The Dallas Morning News article “The way out of the ERISA trap: A tale of divorce, death and money.”

A couple married and then divorced. The divorce decree clearly stated that Mike was awarded all of his employee benefits, including his life insurance. However, when Mike logged into his employer’s benefits systems, it would not allow him to delete his ex-wife as the beneficiary of his life insurance. It may have been programmed that way. There are laws concerning removing spouses from employee benefits. Or it was a glitch. However, Mike did not pursue it.

When Mike died, he was survived by his parents, who claimed his estate, but the $377,000 life insurance policy was not part of his estate because his ex-wife was still the beneficiary.

His parents filed a claim with the insurance company for the proceeds of the insurance policy.

The first court they filed in was the probate court, so they could be properly recognized as Mike’s heirs. The probate court found in their favor and named Mike’s dad as the independent administrator of his estate.

The second court was federal court. That’s because employee benefits are governed by a federal law ERISA—the Employee Retirement Income Security Act—that controls employee benefits, including employer-provided life insurance. These matters can only be dealt with by a federal court.

The federal court ruled that because Mike’s ex was on the beneficiary form, she was the rightful owner.

However, Wendy had waived her rights to the insurance benefits when she signed off on the divorce decree. Mike’s parents were determined to win this battle.

Their legal team took the argument next to court three—the original divorce court. Mike’s dad, in the position of the estate administrator, argued that while Wendy did have a right to receive the money under ERISA, she did not have a right under state law to keep it. She had waived that right in the divorce decree. The divorce court agreed and found that Mike’s estate owned the proceeds. The money was to be turned over to Mike’s parents.

Court number four came when Wendy petitioned the state appellate court to overturn the award. She lost.

What were the factors that allowed Mike’s parents to win this case? The divorce decree contained clear language regarding the life insurance policy. If it had been poorly drafted, the results could have been different. Mike’s parents went through all the correct procedural courts—establishing heirship, then probate, then divorce enforcement case.

One step could have been added: a restraining order so that the ex could not squander the money between the time that she received the proceeds and when the final judgement was rendered.

Reference: The Dallas Morning News (Jan. 24, 2021) “The way out of the ERISA trap: A tale of divorce, death and money”

Second Marriages Face Different Challenges

Successful second marriages must overcome tough issues, like combining finances, households, children and child support, alimony and estate planning. It can become complicated, and requires a commitment to stay the course, no matter what.

Finances loom larger the second time around. What will happen to a teenaged-child’s financial aid eligibility? What are each person’s financial obligations from any prior marriages? U.S. News & World Report’s recent article, “6 Financial Considerations for Remarriage,” lists six financial considerations and steps to take before you remarry:

1. Revise Your Budget. Whether this is your first, second, or third marriage, couples need to create a budget for daily spending, monthly expenses and big-ticket purchases. You should also talk about your household expenses and costs related to children from prior marriages. If you have to pay alimony, let your new spouse know. It’s also a good time to talk about credit card debt, past investments you've made and retirement accounts. You may want to draft a prenuptial agreement.
2. Inform your Fiancé of Any Financial Obligations, Including Child Support. Before getting married, review the laws to see how child support may be impacted by marriage to a new person. While it's unlikely that you would lose your child support if you remarry, the family court may reduce the amount. If a person paying the child support is remarrying, they should talk to their partner prior to the marriage to make certain they understand the amount of the payments.
3. Check Insurance and Benefits. A frequent mistake when remarrying, is not updating the beneficiaries of life insurance policies. You also may have to look at other updates to your coverage, like who will be on your health plan, and you may need to modify your homeowner’s insurance with a spouse and children in residence. Understand that if you get government benefits like Medicaid or Social Security, you could forfeit your Medicaid eligibility when you remarry if your spouse's income is too high to be eligible. You might also discover that your Social Security benefits from an ex-spouse will stop, after you remarry.

A second marriage may also increase a parent's income for federal financial aid purposes for college. If a parent is the custodial parent for the FAFSA (Free Application for Federal Student Aid), their income now may include their new spouse's income. It is important to discuss saving for college and tuition costs, as well as if either partner has children from a prior marriage, whether each spouse will save money for tuition costs.

5. Estate Planning Is Critical. Check your estate planning before remarrying. That includes a will, medical powers of attorney, do not resuscitate orders, durable powers of attorney, designations of guardianship or consent to adoption and various trusts, including trusts for special needs children. If you have children from a prior relationship, hire a qualified estate planning attorney.
6. Create an Inheritance Plan. If you have children from a prior relationship, you need to put the right estate planning documents in place to protect them from being disinherited. In some states, a last will and testament may be enough, but in others it may make sense to also have a revocable living trust.

Talk with your estate planning attorney about how you and your spouse want your estate to be divided among your various children. The surviving spouse is under no legal obligation to provide for their stepchildren. The estate planning attorney will know what strategies will work best to carry out your wishes and protect all  your offspring.

Reference: U.S. News & World Report (November 18, 2019) “6 Financial Considerations for Remarriage”

Why Should We Consider Titling Property as Tenants in Common?

How property is owned matters, especially when it comes to estate planning. In some states, owning property as tenants in common is the default ownership method.

There are a number of different ways to own property. If you own property in Oklahoma, for instance, just titling it “joint ownership,” the form of ownership will be as a tenant in common. Other ways to own property include as an individual, and as joint tenants with right of survivorship (JTWROS).

The Pauls Valley Democrat says in its article “How to title your property as tenants in common” that ownership as a tenant in common provides an undivided interest in the whole property (i.e., an undivided one-half, one-third, etc.). This interest in property stands on its own and can be bought and sold. This form of title is the best option for two or more people who want to keep their title separate during life and after death.

In practice, this ownership is a bit theoretical because an undivided interest provides a partial ownership of the entire property—but not a total ownership of any part of the property. Therefore, an undivided one-half owner has the right to use the entire property, including the right to benefit from one-half of the rent, lease, or crop share.

When several individuals own an undivided interest, the control, usage, and management can become complex and troublesome, especially when one of the co-tenants spends their own money to improve the property, which benefits the other co-tenants.

Tenancy in common offers a benefit because the interest is transferable and can be sold or otherwise transferred, without affecting the other owners. However, the value of a partial ownership is decreased in value, because of the potential limitations on sharing with the other owners.

The following is an issue that can occur, if a husband and wife own their property as tenants in common. If one spouse dies, his or her undivided interest remains as a part of the estate. As a result, his or her estate has to be probated for a clear transfer of title to the surviving spouse or to other heirs. It’s an expense for the survivor that could have been avoided, if another form of ownership were implemented.

Another thought with co-tenancy is a debt of one of the co-owners. The death of one of the co-tenants does not terminate the ability of his or her creditors to file a claim against the property as a part of a probate. Each owner has the right to sue to split the property in a suit for partition, and the other owners may at any time face such action.

This presents a host of legal and financial problems. It’s usually impossible for real property to be divided in equal portions. What usually occurs is that the court sells the property and the parties divide the proceeds of the sale. This is rarely what anyone wants, especially if the property was a beloved family home.

Talk with an estate planning attorney about how to title the ownership of the property, how to align that ownership with the overall goals of the estate and spare your family the cost and heartbreak of having to resort to a court-ordered sale.

Reference: Pauls Valley Democrat (October 2, 2019) “How to title your property as tenants in common”

What Should You Do About Long Term Care?

The cost of long-term care could easily decimate anyone’s retirement accounts. If you don’t plan properly for long-term care, your options will be limited.

Half of people who are age 65 and over will incur the long-term cost of nursing home or skilled facility care. The problem is, according to this article from MarketWatch, “This is how much long-term care could cost you, and don’t expect Medicare to help,” that Medicare doesn’t cover the custodial care necessary for the tasks of daily living.

The length of care needed differs by gender. The U.S. Department of Health and Human Services’ Administration on Aging says that men can expect to need help for an average of 2.2 years, and women will need help for about 3.7 years.

Many will rely on unpaid care from spouses or children, but over a third will spend time in a nursing home, where the median annual cost of a private room is now more than $100,000, according to insurer Genworth’s 2018 Cost of Care Survey. Four out of ten will choose paid care at home; the median annual cost of a home health aide is more than $50,000. Finally, more than 50% of people over 65 will incur long-term care costs, and 15% will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits.

Note that Medicare and private health insurance typically don’t cover these “custodial” expenses. This means that such costs can quickly deplete the $126,000 median retirement savings for people age 65 to 74. People who exhaust their savings could wind up on Medicaid, the government health program for the indigent that pays for about half of all nursing home and custodial care.

People who live alone, are in poor health, or who have a family history of chronic conditions are more likely to require long-term care. Women face special risks, since they typically outlive their husbands and, as a result, may not have anyone to provide them with unpaid care. If husbands require paid care that erases all of the couple’s savings, women could have years or even decades of living on nothing but Social Security.

The earlier you start planning, the more choice and control you’ll have. Let’s look at some of the options:

Long-term care insurance. The average annual premium for a 55-year-old couple was $3,050 in 2019, according to the American Association for Long-Term Care Insurance. Premiums are higher for older people, and those with chronic conditions might not be eligible. Policies typically cover part of long-term care costs for a defined period, like three years.

Hybrid long-term care insurance. With life insurance or annuities with long-term care benefits, money that isn’t used for long-term care can be left to your heirs. These products typically require you to commit large sums or are paid in installments over 5 to 10 years, although some now have “lifetime pay” options.

Home equity. People who move permanently into a nursing home may be able to sell their houses to help fund the care. Reverse mortgages may be an option, if one member of a couple remains in the home. This type of loan lets them use their home equity. However, it must be repaid if the owners die, sold, or they must move out.

Contingency reserve. People with a great deal of investments could plan on using some of those assets for long-term care. Their investments can produce income, until there’s a need for long-term care, and then can be sold to pay for a nursing home or home health aide.

Spending down for Medicaid eligibility. If the worst case scenario hits and long-term care wipes out all retirement assets, then the only recourse is to apply for Medicaid. It would be better to do some advance planning with an elder law attorney, to see if there is any way to protect some assets for a surviving spouse, if there is one.

In all cases, advance planning in mid-life to purchase a long-term insurance plan is optimal.

Reference: MarketWatch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help”

Why Everyone Needs a Plan for Digital Assets

Now that so much of our lives are lived online, we need a plan to prevent the loss of digital assets that include treasured family memories, financial accounts and, in some cases, entire businesses.

The loss of a spouse creates havoc for the surviving spouse or family members in new ways today. Access to a desktop computer, tablet, smart phones and other devices can be lost completely. Accounts that were on autopay may take months to be discovered and turned off. Just the simple act of paying the cable and electric bills can become time consuming, not to mention the potential for cryptocurrency or emails to be lost forever.

To help crack the codes, it many take hiring a tech person, and even then, it may prove fruitless. It can also take a lot of time, says Kiplinger’s recent article, “Make Sure Your Spouse Has Your Passwords.” The article explains that getting access to key financial and estate information has always been a critical issue for women. They’re statistically more likely than men to be widowed or may have a spouse who suffers from a serious illness.

With digital records and passwords, there’s no paper trail to help you locate accounts no one knew existed. It’s also common for women of all ages to delegate key financial and estate responsibilities to their spouse.

To address that problem, women need to organize both personal and financial records. This can include vital documents, like a will, powers of attorney for financial and health affairs, a living will and perhaps a trust. Women can also get organized with other important information, such as finding the warranty for a new TV, car titles, frequently contacted services (landscaper, electrician) and other professionals, like your CPA and insurance agent.

Make sure that, with your estate planning, you also check the beneficiary designations on life insurance policies or retirement accounts. People neglect to update these, after a spouse passes away.  You should also confirm that your joint bank account actually is in both of your names. Get a credit card in your own name and get a copy of each spouse’s credit reports. You should also have a copy of your will secured outside of your safe deposit box.

You can use a digital password manager, or a plain old notebook. However, whatever system you choose, it will be better than nothing. Make sure family members know where the password information is kept, and consider an online solution, if the family is tech savvy.

Reference: Kiplinger (June 6, 2019) “Make Sure Your Spouse Has Your Passwords”

Privacy-Loving Singer Adele Quietly Announces the End of Her Marriage

Unlike many celebrities who lead their entire lives in public, singer Adele has kept most of her life, including her child, private. The announcement that her marriage was ending, was a stunner to all.

Over this past Easter weekend, the singer Adele’s representative shared the news that Adele and her husband Simon Konecki are ending their marriage. The Cheat Sheet reports that curious minds want to know “The Real Reason Adele Is Ending Her 7-Year Marriage To Simon Konecki.”

The rep’s statement was simple and straightforward. It said “Adele and her partner have separated. They are committed to raising their son together lovingly. As always, they ask for privacy. There will be no further comment.”

According to several media sources, it’s thought that the couple didn’t sign a prenup, when they married in 2011. If they opt to file for divorce in the state of California, since that’s where they own property and Konecki’s business has a base of operations, he may be entitled to as much as 50% of Adele’s earnings.

They had much in common in the beginning. However, eventually, they just grew apart. She became an international star, and he was content with being in the background. As she got bigger, her time was taken up with worldwide tours, and they just grew apart.

Adele has appeared not to care much about money. In 2016, she told Vanity Fair, “I don’t come from money. It’s not that important a part of my life.”

However, because she and Konecki have been married for seven years, half of her earnings since 2012 could be at stake, especially if no prenup was signed. A prenuptial contract is a written agreement between two people who are about to marry that sets out the terms of possession of assets, treatment of future earnings, control of the property of each and potential division, if the marriage later ends in divorce.

Experts say that what was made during the marriage will probably be divided on an equal basis.

Since both Adele and Konecki are extremely low-key and focused on their son, there’s little evidence that their divorce will turn acrimonious.

An insider told People, “Adele’s son is everything to her. Her whole life revolves around him. I just can’t see her divorce getting messy, because she’s so careful when it comes to her son. She’s always five steps ahead, in terms of how a decision will affect him.”

In other words, don’t expect too much drama from Adele, who will likely guard her divorce as fiercely as she has her marriage and son.

Reference: Cheat Sheet (April 24, 2019) “The Real Reason Adele Is Ending Her 7-Year Marriage To Simon Konecki”

Two Key Legal Documents For Singles of Any Age

Having a living will and a power of attorney for healthcare will allow a designated person to make decisions on your behalf, when you are unable to communicate your wishes. This may be more important for a single person than someone with a spouse.

What would happen if a single person became so sick, that they were taken to the hospital in an unconscious state and were unable to express their wishes for health care? This is the scenario that having the correct estate plans in place is designed to avoid. According to the article “2 Estate-Planning Tools That Singles Should Consider” from Morningstar, having a living will or advance medical directive in place expresses your wishes for whether or not to be given life-sustaining treatment.

This document, prepared and signed when you are of sound mind, provides you the opportunity to declare whether or not you want to be removed from life supporting measures, if you become terminally ill and incapacitated.

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.

Having these two documents in place will ensure that in a health care emergency, your wishes will be followed. The names of the documents and the powers they convey do vary slightly from state to state, so it will be best to speak with an estate planning attorney in your state who can create these documents for your protection.

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

“Golden Child” Maddox Said to Be Angelina Jolie’s Sole Heir

Talk about playing favorites! If these accounts are true, then only one of Angelina and Brad Pitt’s six children will inherit all of Angelina’s wealth.

As reported by the Hollywood News Daily in its article, “Angelina Jolie Plans To Leave Son Maddox Millions Ignoring Other 5 Children Per ‘Radar,’” Angelina Jolie is rewarding her son Maddox for standing by her, during what has become a lengthy and public divorce from Brad Pitt. Only Maddox will inherit her $116 million-dollar fortune.

Apparently, she wasn’t happy that only one out of her six children totally sided with her in the couple’s divorce. Others close to the Jolie/Pitt family say that Brad is upset with Jolie for leaving the other children out and treating Maddox as her “Golden Child.”

“Brad is in an absolute fury and fit to be tied over Angie’s moves!” revealed the insider. “It finally seemed like they were reaching some kind of compromise with the divorce. But he’s been blindsided by this mess over Maddox.”

In September of 2016, the story surfaced that Jolie decided to file for divorce from Pitt, after becoming increasingly worried about his parenting methods. The news reportedly followed a nasty encounter between Brad, Angie and Maddox that put the family through one of the nastiest celebrity divorce and custody battles in recent memory.

Jolie claimed that Pitt allegedly attacked Maddox during the fight. An investigation was made by the Los Angeles County Department of Children and Family Services, but no charges were filed. However, according to a family friend Brad remains very upset by the entire situation and especially angry with Angelina for not setting the record straight.

Brad feels that his other children are getting short-changed, and he won’t permit it, the friend says.

Brad Pitt is angry that Jolie would treat their children so differently, cutting out Pax, Zahara, Shiloh, and 10-year-old twins Knox and Vivienne. Leaving it all to Maddox, is just wrong in Brad’s view.

“Maddox took his mother’s side in the divorce, and now she’s made him the head of her movie empire,” said the insider.

“He’s her golden boy, but Brad feels someone needs to remind her that she has five other children!”

Given the couple’s past history of going toe-to-toe over the welfare of their children, it’s likely that this is one divorce that won’t be resolved privately or quickly.

Reference: Hollywood News Daily (April 24, 2019) “Angelina Jolie Plans To Leave Son Maddox Millions Ignoring Other 5 Children Per ‘Radar’”