| |
Estate Planning
after a Divorce
Introduction
Upon the conclusion of your divorce, it is usually a safe bet that the last person with whom you wish to speak is another lawyer.
Yet, it is precisely another attorney with whom you should consult after the divorce decree is final, in order to insure that the property and income flow which you have worked/fought so hard to acquire does not end up, upon your death or disability, under the control of the last person whom you wish to have control of your income and assets, your ex-spouse.
Whether you have ever in the past engaged in estate planning, after a divorce is an excellent time to make the decisions necessary to protect yourself and your loved ones in the event of your disability or death.
What issues confront you, post-divorce, which demand immediate attention ?
Personal and Medical Care Decisions
Although you are perfectly capable of making your own decisions regarding your personal and medical care, the day may come when you cannot. A Durable Power of Attorney for Health Care allows you to designate the person of your choosing (and alternate successors, as well) to make health care decisions upon your behalf should there come a time when, because of illness or injury, you cannot. In such a document you can also, should you choose, give legal authority to another to make decisions affecting a physicians decision to artificially prolong your life when you are in a persistent coma.
A Living Will (properly called a Health Care Directive) allows you to choose the nature and extent of medical treatment administered to you, should your health devolve to a persistently comatose condition.
Disability Planning
In the event that you should become disabled, who will manage your assets and income for you and provide for you and your children's care. During your marriage, you probably assumed that if anything happened to you, your spouse would make sure that you and the children were protected. That is probably no longer the case. As a result of your divorce decree you either own all of your assets in your sole name or as a tenant in common with your ex-spouse. Either way, should you become disabled, the only way your assets can be made available to anyone for your benefit is through a conservatorship. A conservatorship is a court proceeding designed to protect those who are substantially physically or emotionally disabled. In a conservatorship anyone interested in your well-being can petition the court to be appointed conservator of your estate; so as to allow management of your assets for your benefit.
Conservatorships are absolutely the worst possible way to allow for the management of your assets in the event of your disability. They involve court proceedings (you've probably already had your fill of them as a result of your divorce); they are expensive (costing @ $1,500 to establish and @ $1500 per year to administer; and, most importantly, you and the conservator lose control of your assets because every investment decision and expenditure made upon your behalf must be approved by the probate judge. In a conservatorship it is the court, not you or your loved ones, who controls your assets.
A Durable Power of Attorney can be a useful document to allow a person of your choosing to manage your financial affairs upon your behalf in the event of your disability.
The power can be drafted in such a way that it is only effective while you are actually disabled and the powers given during such periods can be hand tailored for your individual situation. By executing a Durable Power of Attorney before incapacity strikes, you can make certain that your assets will be managed by the person of your choosing, and not the probate judge, in the most cost efficient manner possible.
Dispositive Planning
How Your ex-spouse gains control
If you are divorced and not remarried and you die, to whom do your assets pass ? Most people with children assume that their children will inherit their assets upon their death; and they are generally correct in that assumption. However, if those children (or any of them) are minors at the time of your death, you may be surprised to learn that, in all probability, your ex-spouse will come to control all of your assets earmarked for a minor child. Why does this happen ?
When an individual dies survived by minor children, the remaining natural guardian of those children is the surviving natural parent. Because of this fact, and because a minor is not legally able to hold title to property, it is entirely likely that upon your death a conservatorship will be created to hold your minor child's inheritance until he or she attains majority and that your ex-spouse, the child's parent and natural guardian, will be made the conservator of that conservatorship estate. While it is true that the conservatorship is still under court supervision, your ex-spouse will have substantial latitude in determining if and how your assets will be spent during your child's minority.
Many people assume that the previously mentioned Durable Power of Attorney will provide the solution to this problem. Unfortunately, this assumption is incorrect. The durability of a Power of Attorney consists of its continued existence and power in the event of your disability. However, the power extinguishes immediately upon one's death.
Protecting Your Child’s Inheritance
In the context of planning in the event of one's death, the two best alternative tools are either a Last Will and Testament or a Living Trust.
A Last Will and Testament not only provides a way for you to designate your intended beneficiaries and the specific nature of the inheritance they are to receive; it also allows provision as to when in what amounts distribution to your child will be made, and designation of your chosen financial manager to control and invest your child’s inheritance and make discretionary disbursement decisions for your child’s benefit until the inheritance is fully distributed according to your wishes. This Testamentary Trust can allow your designated Trustee to manage the child's assets without court interference and expense. It will prevent the court granting your ex-spouse control of your assets as conservator for your child.
It will also allow you to extend the time during which the assets are under management, beyond the age of majority, if you so choose. Another problem with court imposed conservatorships is that, although the court exercises supervisory control over the child’s inheritance during his/her minority; that control ends on the child’s attainment of majority.
Knowledgeable persons usually elect to defer distribution to an age beyond that of majority, which is only 18, in the belief that, while legally an adult, their child will not have sufficient investment knowledge or maturity to adequately manage the inheritance. By utilization of a contingent minor's trust in the body of a Last Will and Testament you can insure that the person(s) of your choosing manage your child's inheritance according to the terms and subject to the powers and restrictions you choose, for so long as you believe necessary to adequately protect your child.
There is one problem with the utilization of a Last Will and Testament as your primary estate planning document.... the overall cost.
While most lawyers draft Wills at relatively low cost, there is a reason for the bargain: Wills are loss leaders. The attorney will be happy to draft the Will inexpensively because he knows that there is a second payday for every Will drafted. That payday occurs in the course of the administration of your Will in Probate Court and it will cost your children a small fortune.
One of the most common mis-perceptions about Wills is that they somehow cause avoidance of the probate process upon death. Nothing could be farther from the Truth. Wills do not avoid probate. Wills anticipate probate. When you execute your Will you are making your advanced reservation for your assets to be probated in the Probate Court upon you death. This is because the only place in the entire world where your Will has any legal effect is inside the course of a decedent estate administration in the Probate Court. Your Will is nothing more than a roadmap used by the probate judge to guide him in the course of your decedent estate administration.
What is so bad about decedent estate administration in Probate Court? Let me count the ways.
It is Public. Every piece of paper filed in the probate court is a public record that anyone can see. The probate file tells the world at large who your beneficiaries are, where they live, identifies assets to be inherited and appraises the value of those assets. If you privacy is important to you for any reason, you do not want to be in probate court.
It is Time Consuming. Because of statutorily mandated time periods, an average decedent administration lasts almost a year. If your estate is large enough to have estate tax consequences, make that three (3) years, because of the estate tax reporting process.
It is Expensive. While a lawyer can charge for his time in probate by the hour (much like in the case of your dissolution of marriage); the law allows the law allows the lawyer to charge based upon a percentage of the gross asset value of the estate.
While a well drafted Living Trust does cost more to draft than a Will, it does much more at far less cost overall.
A Living Trust will allow you to protect yourself from your own disability and your child’s inheritance, as well, at greatly reduced overall cost because there is virtually no administrative (attorney) costs after your death.
If upon reflection, you would like to know more about protecting your self and your child through the use of a Living Trust, please contact me to arrange a free consultation. At this meeting, we will discuss your post divorce financial portfolio, your specific concerns regarding your children’s welfare and how best to protect and promote your children and assure that your hard won assets and income are preserved for you, in the event of your disability, and your children, after your death.
I urge you to take the time to meet with me and learn how to best protect your family.
.
|
|
