California Probate - Law Offices of Janet Brewer Blog

Why Is Estate Planning more Complicated with a ‘Gray Divorce’?

“Rising divorce rates among Americans over the age of 50 are causing more conflict in estate planning, new data shows. According to a recent survey by TD Wealth, up to 40% of financial planners say that rising gray divorce rates are leading to an increase in family strife with estate planning as the top conflict.”

The increasing divorce rates among Americans over the age of 50 is a problem, because minimizing discord among beneficiaries is one of the top three reasons why people engage in estate planning.

The Clare County Review’s recent article entitled “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated” notes that along with prolonged life expectancy and rising healthcare costs, this upward trend in couples divorcing after the age of 50 has created activity and interest in estate planning.

According to the CDC, the divorce rate in the United States is 3.2 per 1,000 people. The ‘first divorce rate,’ or the number of marriages that ended in divorce per 1,000 first marriages for women 18 and older, was 15.4 in 2016, according to research by the National Center for Family and Marriage Research at the Bowling Green State University. As noted earlier, black women experience divorce at the highest rate, 26.1 per 1,000, and the rate is lowest for Asian women at 9.2 per 1,000.  In Michigan, the current divorce rate is 9%, but Tennessee is way up at 43%.

Gray divorce is adding another level of complexity to estate planning that already happens with blended families, designation of heirs and changing domestic structures. Therefore, it is more crucial than ever to proactively review and discuss the estate plans with your estate planning attorney on an ongoing basis.

According to the TD Wealth survey, 39% of respondents said that divorce effects the costs of retirement planning and funding the most. Another 7% said that divorce impacts those responsible for enacting a power of attorney and 6% said divorce impacts how Social Security benefits will be determined.

It’s important to communicate the estate plan with family members to reduce family conflict during the divorce process.

The divorce process is complicated at any age. However, for divorcing couples over the age of 50, the process can be especially tough because the spouse is frequently designated as a beneficiary on many, if not all, documents. Each of these documents will need to change to show new beneficiaries after the divorce has been finalized. It means that wills, trusts, retirement accounts, life insurance policies and listed assets will need to be revised.

If you have any questions about your current estate plan, please call or email us today.

Reference: Clare County Review (Feb. 10, 2020) “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated”

Should Seniors in Love Tie the Knot?

“There are some major financial benefits to tying the knot. From IRAs to Social Security and tax exemptions, there are many reasons (besides the obvious one: love) for older couples to say I do.”

There are many financial pros and cons to getting married, but for people who are nearing retirement who’ve been dating for a long time, there are some federal laws that provide some strong financial reasons to give this serious consideration.

Kiplinger’s recent article entitled “Financially, Marriage Makes a Lot of Sense for Retirees” explains that if you’re married, you can roll your deceased spouse's IRA over to your own IRA and wait to take required taxable distributions (RMDs) until you’re 72.

If you’re not married and you’re the beneficiary, your best plan will be to transfer your deceased partner's IRA to the less tax favorable inherited IRA. However, with the new Secure Act, it will probably result in more taxes. So, for example, if you’re not more than 10 years younger than the deceased partner, rather than being able to delay taxable distributions until you’re 72, you’d have to start taking them every year starting in the year after the deceased partner passes away.

However, if you’re more than 10 years younger than the deceased partner, then the tax consequences will likely be even worse, because you’ll need to remove all the money from the IRA by the end of the 10th year starting in the year after the deceased partner passes away. That means bigger average taxable distributions, than if taken over your life expectancy.

If you’re married, federal law requires that your spouse's monthly pension benefit must be created with a survivorship benefit, which is usually 50% or more of the deceased spouse's benefit, to be paid to the surviving spouse for the rest of their life beginning at a certain age. If you're not married and your partner passes away, this survivor benefit isn’t available.

As far as Social Security Benefits, if you’re married, after your spouse starts taking their benefit, you can claim half of it at your full retirement age (rather than your own, if it’s more). You can also take a reduced amount based on half of the other spouse's benefit as early as 62, if it’s more than your own reduced benefit amount at 62. If your spouse dies, you receive 100% of their Social Security benefit if it's larger than your own, beginning at your full retirement age or a reduced amount as early as 60.

Obviously, if you’re not married, there’s no coordination of Social Security benefits between the couple. You can only take your own benefit starting as early as 62, even if it's a lot smaller.

Next, we’ll look at IRA contributions. If you’re married and have no earned income, you’re still permitted to deposit $7,000 into an IRA, if you’re 50 years of age or older (and $6,000 if you are under 50) based on the earned income of the other spouse. If you’re not married and not working, you can’t contribute to an IRA, even if your partner has earned income.

A major reason for wealthy couples to marry is to get the advantages of portability, which could save on death taxes. Portability allows a wealthy married couple to combine their $11.58 million in federal death tax exclusions into one $23.16 million exclusion. This could mean millions of dollars in death tax savings.

Talk to an experienced estate planning attorney before you make any moves, like saying “I do.”

Reference: Kiplinger (March 9, 2020) “Financially, Marriage Makes a Lot of Sense for Retirees”

How Will a Separation from Your Spouse Affect Your Estate Planning?

When you begin a separation from your spouse, you may not realize that you should consider making changes to your estate plan. While disinheriting your spouse while you are still trying to make it work may sound extreme, there are other steps that you can take.

Unless Your Separation Is Court-Approved, Your Spouse Can Still Inherit

Some couples are not aware that unofficial separations have no legal effect whatsoever. Even if you tell everyone that you are separated, your spouse can still inherit your property if you pass away. You need a legal decree of divorce, annulment, or separation to terminate your spouse’s right to inherit.

Under California law, a “surviving spouse” who can inherit part or all of an estate does not include:

• Someone whose marriage or registered domestic partnership with the deceased person has been dissolved or annulled (unless the couple got remarried);
• Someone who gets a divorce or termination of marriage that is not recognized in California, unless the couple subsequently participate in a marriage ceremony or live together as spouses;
• Someone who, after divorce or annulment of the marriage with the deceased person, who gets married to a third person; or
• Someone who was a party to a court proceeding in which the judge issued an order terminating all marriage or domestic partnership rights (such as a legal separation).

(Cal. Probate Code § 78.) Anyone who does not fall into one of these categories is still married or in a domestic partnership.

California law also provides that a surviving spouse automatically inherits part of the deceased spouse’s estate. This happens even if the will does not name the surviving spouse as an heir. (California Probate Code §§ 21610-21612.) If you truly want to disinherit your spouse, you need to directly state this in the will’s language. Talk to an estate planning lawyer for help.

Planning for the Future

Although your trial separation period might be too early to start making changes to your estate plan, you can plan for the future. If you believe that the separation will almost certainly end in divorce, then go ahead and make the estate plan changes now. If you want to wait out the separation period and see what happens, consider making an appointment with your lawyer for just after the end of the separation. Then if the marriage does not work out, you already have time scheduled to make the legal changes that you will need.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

How Will a Divorce Affect Your Estate Planning?

If you are going through a divorce, you will want to make some key changes to your estate plan as a result. Divorcing a spouse has a big impact on estate planning because most people name their spouses as heirs or beneficiaries. If you no longer want your ex-spouse to inherit, you need to change your plan.

Limiting Your Ex-Spouse’s Rights as an Heir

A California law provides that a divorce or marriage annulment revokes all bequests that you made to your spouse in your will. (Cal. Probate Code § 6122.) In other words, your ex-spouse will not automatically inherit through your will. But you should not rely on this law to protect you. Not every state has a law like this, so if you own property in other states you may not have legal protection. Plus, the California law only works after the divorce is final.

To most effectively limit your ex-spouse’s right to inherit through your will, you need to make a new will. Making a new will does not have to wait until the divorce decree is finalized. You can tear up the old will and sign a new one immediately. In your will, you may want to specifically state that your ex-spouse should not inherit anything or be the estate executor. You also may want to include a beneficiary designation so that just in case you and your ex cannot care for your children, the court will know your wish about who should be the children’s guardian.

Limiting Your Ex-Spouse’s Rights as a Beneficiary

Beyond changing your will, you should change the other legal documents that will give away some of your assets upon your death. These documents include retirement account beneficiary designations, life insurance policies, pay-on-death bank accounts, and trusts. Unlike for wills, there is no state law that revokes gifts of a life insurance payout or the contents of a P.O.D. bank account when someone divorces. You have to actively request a change of beneficiary from the company that owns the policy or holds the account.

Changing Your Powers of Attorney

If you signed any powers of attorney or an advance directive for end-of-life decisions, you should change those too. Again, you can make the changes before the divorce is final. When you no longer want your ex-spouse to be your agent for power of attorney purposes, select someone else who is close to you.

Respecting the Divorce Decree

Finally, respect the terms of the divorce decree when changing your estate plan. You should speak to both your divorce lawyer and your estate planning lawyer about how to make sure that you divide up property per the decree and meet any child support obligations.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Include These Three Items in Your Will

“A will or trust explains what you want to have happen to your assets when you die, hopefully in a very, very long time. While most people understand that a will explains what to do with money, property, and children, there are other parts you might be surprised by.”

MSN’s recent article entitled “3 surprising things you might not think to include your will” tells about three things to include in your will that you may not have thought about before.

Guardianship and funds for your pet. If you have a pet, you’ll want to make certain that it has care when you’re not around. You can name a guardian to take ownership of your pet, in the event your pet outlives you. You can also set up a pet trust in some states.

An executor for your digital assets. You probably have accounts with data on Facebook, Twitter, Instagram, YouTube and other social media accounts. You may have an account for online gaming, operate an online small business, or own other important digital assets. If so, you should appoint someone to manage your digital afterlife.

A digital executor should be able to access your online accounts and manage closing them down or moving them to a new strategy.

Charitable donations. If you have given to a religious organization, school, or other nonprofit, you can include these charities in your estate plan. Another option is to instruct a family member to make a donation with a part of an inheritance. It’s not legally binding, but could it pass on a tax benefit to the ultimate donor.

In addition, remember to keep your beneficiaries updated on all life insurance policies and retirement accounts, because the listed beneficiary on these accounts supersedes anything you put in your will.

If you get divorced and remarried, update your will and also make certain that your life insurance beneficiary is updated.

Don't procrastinate. Make sure that all of your estate planning documents are up to date.

Meet with your estate planning attorney every year or two, to also be sure your plan reflects any changes in the law or changes in your circumstances.

Reference: MSN (Jan. 10, 2020) “3 surprising things you might not think to include your will”

Estate Planning Is for Everyone, at Every Age

“There are milestones in every life. For many, graduations, marriage, children, opening a business and retiring are among these milestones.”

As we go through the many milestones of life, it’s important to plan for what’s coming, and also plan for the unexpected. 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.

Here are some milestones in life when an estate plan is needed:

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.

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. For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be merged, 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.

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.

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.

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

How to Avoid an Epic Fail of a Business Succession Plan

“As closely held business owners know, their financial plans, retirement plans and estate plans are inextricably linked to the value of the business.”

For the business owner, the success of their business impacts their daily lives. The success of their succession plans (say that five times fast!) is inexorably linked to having a well-conceived and properly prepared plan, that is coordinated with their estate plan. Both plans need to be built to withstand challenges, which are outlined in the article “Five events that can ruin a succession plan” from Kenosha News.

Let’s take a closer look at the “Five D’s of Succession Planning.”

Death. Believe it or not, businesses can succeed in the face of their owner’s death. However, this is only if all of the right steps are taken, and the right people are prepared to lead. If the business owner has named a successor, created a plan and purchased business interruption insurance and/or life insurance, the business has a shot at continuing. However, in most cases, the estate plan fails to address leadership succession, liquidity and leadership.

Disability or Disease. Sometimes disability and disease can be worse than death to a business. If the right advisors and plan is in place for death, the business may survive. However, a sick or disabled business owner, especially if they have been the only ones making key decisions, may be less likely to survive. If a disabled business owner has lost some cognitive function and is not able to make the best decisions on behalf of their business and their employees, the business may lose value.

Divorce. Nothing destroys a business, like extended litigation. This is often what happens when divorce occurs. A smart couple will work together, despite their personal acrimony to protect the value of the business and their joint assets. Tearing each other apart harms children and businesses. The best approach is to have a plan created for what would happen to the business, if the couple divorced. Think of it as a prenup for the business.

Drama. Our tendencies toward drama impact businesses. If there is a succession plan and those plans are communicated to the leaders, who make clear to middle management and employees that there are plans in place to continue the business, the company can remain stable. In their absence, rumors will impact everyone, from key employees to management, to vendors. Nothing hurts a business more when other companies in the same business are gossiping about its impending demise. The shining stars of the company will flee for more stable opportunities. Vendors may refuse credit. It spirals downward.

Drive. Most business owners are self-driven individuals who love to see their inspiration, ideas and energy grow into successful businesses. When it’s time to get into the weeds of details, or manage people, they’re not that interested. Or, they dig into the details and the company depends upon one person to succeed—rarely a good idea. When that drive is lost and there’s no plan to hand things over to the next generation or key employees, the business can slump, lose value and eventually, close its doors.

A strong succession plan does more than protect the owner. It protects the owner’s family, employees and their families and communities. An estate planning attorney who routinely works with business owners will be familiar with the strategies available to ensure that all the pieces are in place to continue the business and protect the family.

If you have any questions about your current estate plan and how your business fits in to that picture, please call or email us today.

Reference: Kenosha News (August 25, 2019) “Five events that can ruin a succession plan”

What’s Best for You, a Will or a Trust?

“In past generations, families were very close, there were few estates that had any tax liability, and children respected their parents’ wishes, both before and after the parents passed away.”

That may be an idealistic portrayal, but there is some truth to it. It is no longer unusual for families to engage in estate litigation, according to The Northside Sun’s article “Do You Have a Will or a Trust? Why?” Many families who have estate plans incorporate trusts to ensure that their directions are followed.

One of the many differences between a will and a revocable living trust, is that a will operates only after your death. By contrast, a trust performs many tasks while you are still living. A last will and testament is how assets are distributed after death. A living trust takes effect as soon as it is created and funded, allowing your assets to be protected during life, disability and after death.

A will must go through a court proceeding known as probate, before it becomes a legally effective means of carrying out your wishes. A living trust functions without the need for court involvement, both in cases of incapacity and at death.

While you definitely need a will as part of your estate plan, a comprehensive estate plan will also have provisions to prepare for incapacity. Many people have a durable power of attorney. However, this is just one part of the necessary documents for incapacity. In fact, if the power of attorney is too old, the bank may refuse to honor it. This is an all-too frequent occurrence.

In the absence of a recognized power of attorney, the family may need to apply to the court for a conservatorship, which can be costly. A living trust, on the other hand, can be created to facilitate access to assets, without needing court intervention.

Some families try to create an informal estate plan, by putting their children’s names on assets so they can help their parents in the event of incapacity. These self-created plans usually don’t work. The assets are now exposed to any creditors of the child and are at great risk, if there is a divorce or bankruptcy.

Similarly, making an adult child a co-owner of real property will not give the child the ability to sell the property, and once again the asset is subject to the claims of creditors.

This is also the case when using lifetime gifting to avoid probate or minimize the size of a taxable estate. A trust can serve the same purposes, without the risks that an outright gift presents.

This is especially problematic in the event that a child goes through a divorce. The assets could actually end up being owned by the former spouse’s new spouse. Using a trust can maintain control of the assets.

Another family dynamic where trusts are valuable, is when there are children from multiple marriages. When the married couple creates a will that leaves their assets to each other, one set of children is likely to be accidentally disinherited. Let’s say a father has two daughters and a mother has two sons. They marry, and create wills to leave each other all of their assets. If the father dies, the mother inherits his entire estate. When the mother dies, it is more likely that she will leave her estate to her two children. A trust can be created that will facilitate the distribution of the remaining assets that had belonged to the father to his daughters.

Speak with an experienced estate planning attorney to learn how you can use trusts as part of your estate plan, in planning for life, incapacity and death. Trusts don’t have to be complicated to serve your needs. Make sure you understand the trusts, how they work and that they will achieve your goals.

Contact our office today to schedule your consultation.

Reference: The Northside Sun (August 14, 2019) “Do You Have a Will or a Trust? Why?”

What Is a Marriage Contract and How Does It Affect Estate Planning?

If you are about to get married, you may have made a marriage contract that could affect your estate planning. Some couples may even have made marriage contracts years ago and not realize the impact that the contracts have on their estates.

What Is a Marriage Contract?

In the United States, a marriage contract is an agreement between two spouses or partners regarding property division if the marriage breaks up and/or support during the marriage. You might have heard of a marriage contract referred to as a:

• Prenup
• Postnup
• Prenuptial agreement
• Postnuptial agreement
• Antenuptial agreement

A “prenup” refers to an agreement made shortly before marriage in anticipation of the marriage, while a “postnup” refers to an agreement made after the couple gets married. In either case, these marriage contracts may affect estate planning and property distribution if one spouse passes away.

How Do Marriage Contracts Impact Estate Planning?

First, a marriage contract may override a will. Depending on the specific language of the contract and its effect on distribution of an estate, a court may uphold the contract even if it contradicts the terms of a will – no matter whether the will was signed before or after the marriage contract. Since marriage contracts may provide that a spouse will not receive any portion of the estate or will only receive a certain small amount, they can have a major effect on estate distribution.

The same is true if the deceased spouse did not have a will. Courts may enforce a marriage contract despite the intestate succession laws that require partial distribution of an estate to a surviving spouse. In other words, signing a marriage contract could result in disinheriting a spouse or severely limiting a spouse’s inheritance, even without a valid will.

Before signing a marriage contract, couples should learn about these agreements’ impact on their estates. Any estate plan, whether made before or after signing the contract, should be customized to account for the terms of the marriage contract. A lawyer can assist you with this task, as well as advising on the tax implications of the estate plan and marriage contract.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Remarried? Look Carefully at Your Estate Plan

There are many issues to address in a remarriage, especially if it blends families.

Remarriages are on the increase, with four of 10 existing marriages now remarriages. That means an estate plan should be created or the current one updated, according to the Cleveland Jewish News in the article “Estate planning documents for second marriages.”

In the article, a couple who each have children from a prior marriage are planning to marry again and blend their families. Consequently, the couple needs to address income taxes, a prenuptial agreement, pension and 401(k) benefits, Social Security, college funding, cost sharing and estate planning documents.

Here’s an example of how important estate planning is for blended families. A couple who has children of their prior marriages get married. Twenty years later, the husband dies. He had wanted to provide for his second wife, so his will stated that all his assets went to his wife, with the understanding that on her death, those assets would go back to his children.

What actually occurred was that his wife lived a long time after he passed, and she simply combined their assets. When she died, the money went to her children, and her husband’s children received nothing. The husband’s children didn’t believe that he meant to do that, but because of the lack of planning, that’s exactly what happened.

What were the alternatives? He could have set up a marital trust that would have held the assets for his second wife on his death, but upon the wife’s passing, would have gone back to his children. The trust document prohibits the wife from transferring the assets to her children.

It’s wonderful to have a verbal agreement with your spouse, but if you don’t set up a formal legal plan, there’s no way to be sure that assets will be distributed as intended.

Another way to ensure that children from a blended family receive what they are intended, is to have an independent person or entity, like a bank or a trust company, oversee a marital trust.

Other important documents include a durable financial power of attorney, durable health care power of attorney and a living will declaration.

Anyone who has been divorced needs to review their estate planning documents to ensure that they reflect their new marital status, especially when they marry again. That is also the time to review beneficiary designations that appear on insurance policies, 401(k)s, pensions, retirement accounts and investment accounts.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, including a remarriage.

You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Cleveland Jewish News (May 7, 2019) “Estate planning documents for second marriages”