Estate Planning And Divorce

estate planning lawyer, probate lawyer Let’s talk about Estate Planning and Divorce. Will a divorce affect your Will? Over the years, many people have asked us about how a divorce will affect a Will or Estate Plan. Sometimes the question comes out of curiosity, and at other times, the person asking has just gone through a divorce. The best time to review or establish an estate plan is after the occurrence of a major life event.  In fact, these are often the only times many people even think about estate planning.

Major life events may include marriage, the birth of a child, or the death of a family member. Unfortunately, divorce is also a major life.

Beneficiary and Executor Designations

Typically, married couples have their estate plans drafted at the same time, and the terms of each plan are very similar. More often than not, one spouse has named the other as the executor of his or her Estate, as well as the sole beneficiary of his or her Estate.  While  Tennessee law contains a statute that essentially disinherits a person’s spouse in the event of divorce, that statute does not affect beneficiary designations or the titling or re-titling of assets.  Therefore, we do not advise that you rely on this statute alone.

In addition to reviewing your Will and other estate planning documents after a divorce, it is also important to  review the ownership structure and beneficiary designations of any assets that will not pass under the terms of your Will, such as retirement plans or life insurance policies.  Many assets, such as these, do not pass pursuant to the terms of a person’s Will, but rather will be distributed according to beneficiary designations.

Legal Guardians for Minor Children

In Tennessee, the only way to designate a legal guardian for a minor child in the event that something should happen to you is under the terms of your Will.   The person you choose to designate as the guardian of your child while you are married may greatly differ from whom you would select to fulfill the role after a divorce.

Let us help you with Estate Planning and Divorce Issues

As you can see, it is extremely important to undergo a comprehensive review of your assets and estate plan in the event of a divorce. If you have recently experienced a divorce or other major life event, or if you would like us to create or review an estate plan for you, please call us at 901-372-5003. We’re ready to help you.

Who are my Beneficiaries? A critical question in planning for the future.

beneficiary designations estate planning lawyerDo you know who your beneficiaries are? When we ask clients this question, their first response is often quick and affirmative. However, we frequently discover through the estate planning process that the beneficiaries listed on our clients’ life insurance policies and retirement accounts are not who they think they are, nor are they the intended recipients of the property.

How does Property Pass to Beneficiaries?

One of the most common misconceptions we see is how property passes at someone’s death.  Accounts that have beneficiary designations  pass to the beneficiary or beneficiaries named on the beneficiary designation form for that account regardless of what your will or trust says.  So, for example, if my Will says that everything passes to my spouse at my death, but my beneficiary form on my life insurance names my children as beneficiaries, my life insurance proceeds  pass to my children and not to my spouse. Here are some examples of accounts that typically designate beneficiaries:

  • life insurance
  • retirement accounts
  • transfer on death accounts (TOD)
  • payable on death accounts (POD)

Periodically Review Your Beneficiary Designations

The  Supreme Court case of Kennedy v. Plan Administrator of DuPont highlights the unintended results that may occur if your beneficiary designations are not reviewed periodically.  In this case, William Kennedy named his wife, Liv, as the sole beneficiary of his pension and retirement savings plans at DuPont.  When the couple later divorced, the Qualified Domestic Relations Order (QDRO) provided that Liv gave up her rights to receive any benefits from William’s pension and retirement plan.  Unfortunately, however, the court order was never submitted to DuPont and the beneficiary was never changed.  When William later died, DuPont paid out the plan benefits to his ex-wife, Liv.  Their daughter, Keri, was appointed as Executor of William’s Estate and filed suit claiming that the Estate should receive his retirement benefits because the QDRO clearly provided that Liv had waived any interest she might have in those benefits.  The Supreme Court upheld the ruling of the Circuit Court in saying that DuPont properly paid the benefits to Liv and that Liv was entitled to the pension and retirement funds even though the parties were not married at the time of William’s death and the QDRO clearly provided otherwise.

Moral of the Story

The moral to the story is that the beneficiary designation governs. Thus, it is very important that you know who is named on your various beneficiary forms so that your property goes to the beneficiary or beneficiaries that you intend for it to go to.  It is clear that William did not intend for his benefits to go to his ex-wife instead of his daughter, but the Supreme Court held that the beneficiary designation governed and that DuPont properly paid the benefits to Liv.

Tips for Beneficiary Designation Forms

Here are some tips and common problems to watch out for with your beneficiary designation forms:

1. Do you know where the form is? Generally, employers maintain records of the form, but if they cannot find their form when the time comes, the burden may be on you to produce a copy of the form.

2. Is the form up to date? Changes in your life may require you to review the forms periodically. If you have had a recent marriage, divorce, birth or death in your family, it is important to review your beneficiary designations. And remember, your Will does not change who the beneficiary is on an account or insurance policy.

3. Do you have a contingent beneficiary named? If the beneficiary you have named dies before you or is involved in a common accident with you, you may not know who the benefits will go to if you do not name a contingent or secondary beneficiary.

4. Have you named a minor as a beneficiary? Minors cannot legally hold title to property, including these benefits. If you have named a minor, a guardianship may have to be established and administered through the Probate Court concerning applicable funds.

Want to talk it over with an Estate Planning and Probate Lawyer?

If you have questions regarding your beneficiary designations and how they factor into your Estate Plan, please call us at 901-372-5003 or email us here. We’re ready to help you plan for the future.

To read about other Estate Planning topics on our Blog, click here.

To meet the lawyers and staff at Wiseman Bray PLLC, click here.

 

Blog Post By:  Larry Bray

Estate Planning Lawyer in Memphis

Law FAQ: Questions About Revocable Living Trusts

What is a revocable living trust?  A revocable living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die.  But, unlike a will, a living trust can avoid probate at death, control all of your assets and prevent the court from controlling your assets if you become incapacitated.  You can click here or here to read prior posts about the probate process.

How does a revocable living trust avoid probate and prevent court control of assets at incapacity?  When you create a revocable living trust, you transfer assets from your name to the name of your trust, which you control.  Legally, you no longer own anything; everything now belongs to your trust.  So there is nothing for the courts to control when you die or become incapacitated.  The concept is simple, but this is what keeps you and your family out of the courts.

Do I lose control of the assets in my revocable living trust?  Absolutely not.  You keep full control.  As trustee of your trust, you can do anything you could do before – buy and sell assets, change or even cancel (or revoke) your trust.  That’s why it’s called a revocable living trust.  You even file the same tax returns.  Nothing changes but the names on the titles.

Is it hard to transfer assets into my trust?  No.  Your attorney, financial advisor, insurance agent and other professionals can help.  Typically, you will change titles on real estate, stocks, bonds, CDs, bank accounts, investments, insurance and other assets with titles.  Revocable living trusts also own tangible personal property and other assets that do not have titles.  Some beneficiary designations should also be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die.

Doesn’t this take a lot of time?  It will take some time – but you can do it now, or you can pay the courts and attorneys to do it for you later.  One of the benefits of a revocable living trust is that all of your assets are brought together under one plan.  Don’t delay “funding” your trust; it can only protect assets that have been transferred into it.

Feel free to contact us for more information about how a revcoable living trust would work in your estate plan.

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Law FAQ: What is Probate and why is it bad?

What is Probate and why is it bad?  (a.k.a. Why simply having a will might not be enough.)

Probate is the legal process through which the court sees that, when you die, your debts are paid and your assets are distributed according to your will.  Indeed, a will is a “ticket” to Probate.  If you don’t have a valid will, your assets are distributed according to state law.  But….

Probate can be expensive.  Legal fees, executor fees and other costs must be paid before your assets can be fully distributed to your beneficiaries.  If you own real estate in other states, your family could face multiple probates, each one according to the laws in the state where real estate is owned.  These costs vary, but a good rule of thumb is the cost of Probate will be 6% of your total estate.

Probate takes time, usually nine months to two years, but often longer.  During part of this time, assets are normally frozen so an accurate inventory can be taken.  Nothing can be distributed or sold without court and/or executor approval.

Your family has no privacy.  Probate is a public process, so anyone can see what you owned, whom you owed, who will receive your assets and when they will receive them.  The process “invites” disgruntled heirs to contest your will and can expose your family to solicitors.

Most importantly, your family has no control.  The Judge and the Probate Court process determines how much it will cost, how long it will take, and what information is made public.

Our firm employs estate planning strategies that can reduce the hassle of the probate process, or even eliminate it altogether.  For example, click here to read my post from last week about using revocable living trusts.

Feel free to contact us for more information.

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