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Helping Couples Plan for Their Future From MEREDITH | PC MEREDITH | PC 4325 Windsor Centre Trail Suite 450 Flower Mound Texas 75028 214-513-1013 October is one of the most popular months for couples to tie the knot in the United States. While wedding planning most often includes tuxedos, dresses, rehearsal dinners, guest lists, and the honeymoon, an overlooked part of pending nuptials is estate planning. For younger couples beginning a life together and getting married for the first time, estate planning may not be a terribly complicated endeavor. With minimal property and savings, simple wills, financial powers of attorney, and healthcare directives may be sufficient and prudent planning for the first years of marriage. The age at which couples are getting married for the first time continues to creep upward, however. It is therefore common for individuals to accumulate significant amounts of property, savings, and investments during their single years. When couples with property beyond the most simple items marry, estate planning becomes much more urgent. It is even more crucial when children are born into the marriage or when entering a second or third marriage, perhaps creating a blended family. If your clients are considering marriage or have recently tied the knot, reviewing the following information with them can help them tackle the critical task of planning for the management and distribution of their property should either of them become unable to manage their affairs or die sooner than expected. Challenge Their Assumptions An all too common mistake that married clients make when approaching estate planning is assuming that their spouse sees things the same way they do. The following questions should be asked of each spouse: How do you feel about the necessity of purchasing and maintaining life insurance? Do you feel that the other spouse could handle the family finances on their own if you were to die suddenly or become unable to manage your own affairs? Who should care and raise your minor children if you both die? To what extent should the money and property left to each other be protected from future creditors or new spouses? Who is best prepared to make end-of-life decisions for you should you become critically ill and unable to communicate your wishes? Do you expect that all of your wealth should be left to your spouse? Do you want to leave any money or property to aging parents, children from another marriage, or to a charity or other important cause? How should your property be left to your spouse or your children or grandchildren? Do you believe that inheritances should be distributed outright (no strings attached) or should it be left to beneficiaries in trust (with specific instructions as to when and how the inheritance is to be used)? The answers to these questions regularly surprise couples. These questions should be discussed sooner rather than later, especially if you sense that your clients are not sure of how each would answer. Couples who communicate and challenge their assumptions will be far better prepared to successfully complete their estate plan. Joint or Separate Estate Plans The decision to jointly engage an attorney to assist with an estate plan may not be as simple as it would seem at first blush. Depending upon the clients' circumstances, it may be advisable for a couple to engage separate legal counsel to assist with the estate planning process. If any of the following circumstances apply to your clients, you should advise them to give serious thought to hiring separate counsel for their estate planning: Does either spouse have children from a prior marriage or relationship? If yes, is there any tension between the spouses when they discuss how they would want the accounts and property divided upon the death of one or both of them? Did one spouse bring far more money or property into the marriage? Does one spouse have something in the estate plan that the spouse wants to keep hidden (for example, is there a child from outside the marriage that the spouse does not want revealed)? Do your clients have very different ideas about philanthropic goals in their estate planning? Do your clients have a prenuptial or postnuptial agreement? If so, do your clients now desire to change the terms of that agreement through an amendment or estate plan? There may be other reasons to seek separate counsel in estate planning. A good rule of thumb is that if there are aspects of one spouse's financial or family relationships that will likely breed contention and misunderstanding between the couple, the clients should consider using separate counsel to help them carefully negotiate and resolve the legal and estate planning issues that intersect with these problem areas. On the other hand, for those clients who are willing to communicate and resolve the differences discussed above, it may be possible to assist them with their estate plan. One advantage of joint legal counsel is that the attorney can act in some ways as a mediator and educator, helping clients identify and craft creative solutions to challenges that may arise during the estate planning process. Additionally, jointly hiring legal counsel tends to be a less expensive solution and communication tends to flow much more freely when fewer individuals are involved. Elective Share Laws It is important to understand that even if clients do separate estate planning, the United States has elective share laws that are designed to ensure that a married individual cannot completely disinherit a spouse or minor child from another marriage. The reason for these types of laws is that traditionally, lawmakers felt that these family relationships deserve to be protected from financial ruin by an individual who perhaps would unwittingly or unwisely attempt to disinherit a spouse or child dependent upon that individual for support. These elective share laws allow a disinherited spouse or child who is still dependent upon the deceased individual to legally claim a percentage share of the deceased individual's accounts and property regardless of what the will or trust provides. If spouses have agreed to leave their entire estate to someone other than the surviving spouse, they will likely need to sign a prenuptial or postnuptial agreement in which the disinherited spouse waives elective share rights. Such a waiver must meet certain requirements to be valid, which can vary by state. For example, most state laws require that the disinherited spouse must have been represented by independent legal counsel when negotiating the waiver in the marital agreement. Unmarried Couples Marriage today is less common than it was a few decades ago, with more couples choosing to live together without the legal consequences of marriage. Suppose your client is in such a relationship, but feels a deep financial commitment to the client's partner. In that case, the client may be in even greater need of a carefully crafted estate plan depending upon the client's goals. In nearly every state, intestacy laws that govern how an individual's property is to be managed when that individual is unable to manage their own affairs or dies without a valid will or trust typically do not allow for an unmarried partner to receive the individual's property. To ensure that property passes to a partner, certain legal steps must be taken: Jointly titling property (such as bank accounts and real estate) with the partner so that it passes to the survivor automatically at the deceased partner's death Naming the partner as the payable-on-death or transfer-on-death beneficiary of certain financial accounts Naming the partner as the beneficiary on an IRA, 401(k), 403(b), or another retirement plan Drafting a will or a trust and naming the partner as a beneficiary Naming the partner as the beneficiary on a life insurance policy Drafting a financial power of attorney naming the partner as the trusted individual to make financial decisions on the client's behalf Each of these methods of leaving property to a partner has pros and cons. For instance, jointly titling a home with a partner may be an easy way to ensure that the partner will inherit the shared home when your client dies. However, if your client and the partner split, the former partner will continue to jointly own that property and can force the sale of the property to liquidate the partner's share. Additionally, there may be gift tax consequences to adding a partner to the title of a banking or investment account, which could affect your client down the road. Even worse, jointly titling property with a partner can subject it to the partner's lawsuits or creditor claims in the future even though your client's intent was merely to allow the partner to inherit that property upon the client's death. An unmarried client should also consider drafting a healthcare power of attorney and living will (also called an advance healthcare directive) naming the partner as a medical decision maker should the client be unable to make or communicate the client's medical wishes. Estate Planning When the Marriage Is on the Rocks Sadly, many marriages ultimately end in divorce. If a couple is in the process of divorcing, it is important to consider the implications of any current estate plan in place should something suddenly happen to your client. Some decisions that the client might want to change immediately include the following: The person named as the client's medical decision maker. Choosing a different decision maker can usually be done at any time. Most people would not want their soon-to-be-ex to be in charge of making life and death decisions on their behalf. The person appointed to make the client's financial decisions. Depending upon the type of financial power of attorney prepared, the ex might be authorized to act when the client is no longer capable of handling the client's own financial affairs (a springing power of attorney)—or is currently able to act on behalf of the client (immediate power of attorney). The guardian for the client's minor child from a prior relationship or marriage, if the client would no longer want the soon-to-be ex-spouse to be the guardian. The person named in the client's will as personal representative or as trustee of the client's trust (if the client has a separate trust from their spouse). However, there are some things that may not be changed until after the divorce is finalized. For example, when a divorce case is pending in court, the couple is legally prevented from changing the following: Beneficiary of a will or trust Legal title to bank accounts, real estate, and other types of investments Beneficiary designations on retirement accounts Beneficiary designations on life insurance Ownership of personal property such as vehicles, art, furnishings, etc. Once a divorce has become final and the property division is memorialized in the divorce decree, the client has the right (and should not delay) to revise the client's estate plan in whatever manner the client wishes, keeping in mind any requirements imposed by the divorce decree, elective share laws for child support, or continuing spousal support obligations. As you can see, it can be critically important for clients with spouses, partners, or children to obtain solid legal estate planning counsel. Without careful planning, a client is almost guaranteeing that their loved ones will experience frustration, expense, and delays when it comes to the management and distribution of their accounts and property if something happens to them. Conversely, a carefully crafted estate plan can provide significant peace of mind for your clients and their significant others for years to come. Call our office today for a virtual or in-person meeting to discuss how, together, we can help your clients achieve their important estate planning goals. This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies. You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning. Unsubscribe from this newsletter MEREDITH | PC 4325 Windsor Centre Trail Suite 450 Flower Mound Texas 75028