There is much confusion over the function of a Special Needs Trust.  Special Needs Trusts (sometimes referred to as Supplemental Needs Trusts) are designed to provide benefits to, and protect the assets of, physically disabled or mentally disabled persons while still allowing them to be qualified for and receive governmental health care benefits, especially long-term nursing care benefits, under the Medicaid program. 

There are actually two different types of Special Needs Trusts.  The first type, often referred to as a Third Party Special Needs Trust, is created by a friend or relative of the person with special needs to hold gifts or inheritances for that individual.  The funds in the Third Party Special Needs Trust are not considered a resource of the person with special needs, therefore allowing the person to continue to qualify for Medicaid benefits.  The Third Party Special Needs Trust can be established at any time, but usually is created early in a child’s life as a long term means for holding assets to benefit the disabled family member.

The second type, often referred to as a First Party Special Needs Trust or D4A Trust, is frequently used to receive personal injury litigation proceeds on behalf of a disabled person in order to allow the person to continue to qualify for Medicaid benefits.  This Trust can be established at any time before the beneficiary’s 65th birthday. 

The Special Needs Trust must be part of any parent’s estate planning tools when he or she has a child with special needs.  As a part of Estate Planning, the costs of the creation of the Trust are tax deductible.

A Third Party Special Needs Trust that is funded by parents or other third party sources will not be required to pay back Medicaid.  However, a First Party Special Needs Trust, which is funded by a personal injury Settlement or otherwise from the person with special needs own assets, will be required to pay back Medicaid when the child dies.

The only assets within the Trust that are subject to the repayment obligation are those assets which originally belonged to the disabled individual him or herself that are transferred into the Trust (i.e. assets such as earnings from a job, savings, certain Social Security back payments, personal injury recoveries, and the like).  At the individual’s death, the Trust is liable for an amount equal to the Medicaid used during the lifetime of the disabled or chronically ill individual.  It is not uncommon for a Trustee or a disabled individual to ask a court to direct certain assets into the Trust.

The cost for not creating the proper Special Needs Trust is for assets to be used before Medicaid will be accessible by the person with special needs and that the assets will not then be available for those expenditures that are not otherwise covered by Medicaid.  This is a quality of life issue, i.e., how to help someone’s life be better and still receive all appropriate government help.

Florida is the latest state to jump on the liability reduction bandwagon with new section 736.0902 (Non-application of Prudent Investor Rule),that limits the duties and liability of Irrevocable Life Insurance Trust (ILIT) trustees Freed from investment responsibilities with respect to an asset that few trustees profess to fully understand, the trustee may focus on paying premiums on time and sending out “Crummey” withdrawal notifications.  The drafters likely intended § 736.0902 to be the next step in the evolution of protective insurance statutes.  Since imitation is the sincerest form of flattery, it will be interesting to see whether other states adopt similar statutes.

The Florida Supreme Court recently issued it’s long awaited ruling in the case of Olmstead vs. Federal Trade Commission.  This decision is significant regardless what state you live in because the Florida Supreme Court is now the highest court to continue the trend of other courts across the country to allow creditors to make claims against a single member LLC.

This week, we lost one of baseball’s iconic owners, George Steinbrenner.  He bought the New York Yankees from CBS over 30 years ago at a price tag of about 10 million dollars.  As a long-term Yankee fan, I, like most New Yorkers, have had a love-hate relationship with George Steinbrenner and his handling of the Yankees. 

How does this tie into estate planning?  Well, as a result of the inability of Congress to act, New Yorkers and Yankee fans should not have to worry about any significant changes being made to the operation and management of the Yankees, since his estate does not have to sell any assets to pay for any Federal estate taxes.  Yes, that is correct, even though Steinbrenner’s estate is estimated to be worth over 1 billion dollars, his estate will pass free of estate taxes to his family because of the expiration of the federal estate tax in 2010.  Note:  If Steinbrenner was a Florida resident, there would be no Florida estate tax, but if he was a New York resident or owned New York real estate, then his estate will owe New York estate taxes (which could be as much as or more than 160 million if his entire estate is subject to New York estate tax).

Steinbrenner’s death could prove to be a wake up call for Congress on the huge amount of tax dollars not being collected in 2010 as a result of the one year moratorium on Federal estate taxes.  Just from the death of Steinbrenner and one other multi-billionaire this year, the Federal government has lost approximately 5 billion dollars in Federal estate taxes.  Estimates of lost revenue range as high as 30 billion for the entire 2010 tax year as a result of there being no Federal estate taxes in 2010.

This past June, senators introduced legislation that would implement a progressive estate tax starting at estates valued at 3.5 million and a 10% surcharge on estates larger than $500 million.  These senators would also like to see the 45% tax rate from 2009 retroactively imposed on all estate of individuals dying in 2010.  If Congress retroactively reinstates the estate tax for individuals dying in 2010, it likely that this story and saga will continue for many years, since there are at least a few families who have the resources and means to challenge the constitutionality of a retroactive reinstatement of the estate.  It can be expected that any such challenge will go all the way to the Supreme Court.

This blog does not reflect necessarily my personal views on the estate tax.

Attorney and Founder of the estate planning law firm, Altman & Associates, Gary Altman, Esq., is making full use of the possibilities of social media, with active profiles now on Twitter, Facebook and LinkedIn.

“Studies show that more than 60% of all Americans die without a will, leaving their estates to be divided and taxed according to predetermined federal and state laws, perhaps in ways they didn’t intend.  This is outrageous.  The more venues I have to educate and stress the critical importance of estate planning, the better.  This is why, alongside our estate planning blog, Altman Speaks, we decided to expand our outreach on social media applications.”

Finding Gary Altman/Altman & Associates online:

·     Twitter:  http://twitter.com/garyaltman

·     Facebook:  http://www.facebook.com/GaryAltmanEsq

·     LinkedIn:  http://www.facebook.com/GaryAltmanEsq

·     “Altman Speaks” Blog: www.altmanassociates.net/blog

The biggest hurdle facing estate planners is proscrationation.  No one expects anything bad to happen.  Most figure they can wait one more day, one more week, one more month to do estate planning.  Some opt to buy that flat screen TV or go on another vacation rather than to do estate planning.  In fairness, most of the time waiting or putting off estate planning is ok, because nothing happens.  HOWEVER, what if the unthinkable happens, whether it be a death, disability or lawsuit.  Then what? 
 
That is what happened recently to a client of mine.  They were referred by their financial advisor late last year.  They called in December and made an appointment for early January, which they canceled due to some conflict.  They eventually came in for their initial consultation in late February.  I was advised that the wife had cancer and her progronosis was not good.  We immediately drafted their estate planning documents and then tried to get them to come in to sign.  They made an appointment to sign, but then canceled it due to a doctor’s meeting.  We tried again.  Finally, we received a call that she was in the hospital.  We suggested that we go to the hospital to get the documents signed, but by then it was too late, she was not awake.

Unfortunately, she died last week.  The bottom line, no estate tax planning was done, and upon he husband’s death, the children will pay an additional $200,000 of Maryland estate taxes and if Federal estate taxes are restored in 2011, there could be an expected 700,000 of Federal estate taxes when the husband dies.  Moreover, if the husband gets remarried, it is possible that his new wife and family will actually inherit all of the assets.  Or, if he gets sued or goes into a nursing home, all of the assets will be subject to the creditor or nursing home.
 
If they had been able to do the estate planning that was recommended, all of the estate taxes would have been saved, the assets would stay in the family’s blood lines, and the assets would be protected from creditors, nursing homes, etc. 
 
I know how hard it is to plan.  But it is necessary and important to plan now.  Mostly because no one ever knows when it will be necessary and if it is necessary, not planning is a complete and total disaster waiting to happen.

April 3, 2010 Wall Street Journal article, “Inoculating Estates From Health Costs” by Kelly Greene:

Should you give away your nest egg to your heirs—and then stick Medicaid with your nursing-home tab when the time comes? Outrageous though it might seem, it is a perfectly legal estate-planning strategy.

Mark Matcho

Mother and son Vera and Paul Kubala were weighing such a plan pitched to them a few months ago at a financial seminar. Mrs. Kubala, who is 82, could have set up an irrevocable trust to hold an annuity she would buy using most of her assets. Upon her death, the annuity would go to her family. Meanwhile, if she needed long-term care, the lack of assets in her name would allow her to qualify for Medicaid. They decided against it in part for ethical reasons.

Does such a plan make sense for you? Even before you begin to tackle the moral dilemmas, quality-of-life issues might argue against it. “It’s not only important to think about how money’s being left to her family, but also how [the mother] is going to get the type of care she needs,” says elder-law attorney Vincent Russo of Westbury, N.Y.

Medicare, the federally administered health-insurance system for the aged, covers long-term health needs in only a few circumstances. Medicaid, the state-federal program that helps pay for care for the poor and disabled, covers nursing homes for those who qualify.

But the system is straining government budgets like never before. The program spent nearly one-third of its revenue, or about $110 billion, on long-term care in the fiscal year ended Sept. 30. That puts pressure on the system to cut costs, which doesn’t always mean excellent care. That pressure will increase in coming years as baby boomers retire en masse.

And you may have little say on where you spend your golden years. Nursing homes often get paid less by Medicaid than by private insurance. Some facilities—particularly newer, nicer ones—try to limit their Medicaid numbers. So, the government-paid bed you can get could be far from family in a facility you dislike.

Similarly, you can’t control the type of care you get. Even if your state has Medicaid funding for assisted-living units, there is probably a waiting list.

Due to budget pressures, the rules governing Medicaid planning have tightened. To become eligible, you generally must have no more than $2,000 in cash and investments. In the past, regulators looked at gifts you made up to three years before applying for Medicaid. Now, they look back five years. And the penalty period—during which you can’t get Medicaid to pay for care—starts when you apply for Medicaid, not at the time you made the gift.

Giving money to your children also could complicate their finances in unexpected ways—hurting their chances to qualify for financial aid to send grandchildren to college, for example. If you want to give your home to the kids, think about what might happen if they go bankrupt, get divorced, or decide sooner than you that it is time for a nursing home.

To make sure your kids get something while you keep a say over your long-term care, Mr. Russo suggests holding onto your money instead of setting up an annuity-funded trust. If it turns out you need long-term care, you could give half of your assets to your kids, tap the long-term-care services most appropriate for you at that point, and apply for Medicaid if needed. Then, with the rest of your money, you could either buy a short-term annuity or make a short-term loan to one of your children, using the payments you get back to cover as much of your care costs as possible.

Let’s say a mother gives half of her $200,000 in savings to her children and then applies for Medicaid (with care costing $5,000 a month). If she buys an annuity or makes a loan with her remaining money, she should have enough income each month to pay for 20 months of care herself. After that, Medicaid would kick in. Or, with luck, she may be back on her feet and never need it.

Contributed by:  Renee A. Bouchard-Kaiser

Can a will be kept too safe?  Surprisingly, the answer is yes!  We were recently engaged by family members to probate and administer a person’s Will and Estate.  During the initial estate settlement meeting with family members, we explained that in order to probate the Will and have the Personal Representative named in the Will duly appointed by the Court, we were required to file the original Will with the Register of Wills.  Unfortunately, family members had only a copy of the Will. We advised family members to search through the person’s personal papers, safe deposit box, dressers, night stands, home safes, etc. 

After a couple of weeks of searching, family members called saying the Will could not be found.  We advised them once again to continue searching through the home and look through the refrigerator, freezer, other appliances and unlikely hiding places.  Unfortunately, their search continued to turn up nothing.  Understandably, this worried and caused them great distress. They were concerned that their loved one’s last wishes would not be fulfilled and assets would have to be distributed according to the State of Maryland’s intestacy laws.

Without the original Will, we had to prepare and file a Petition to Accept a Copy of the Will in Lieu of the Original (as well as file the requisite notices to interested parties) with the Orphans’ Court.  Once the paperwork was filed, the Orphans’ Court placed the matter on its docket and our firm was required to appear before the Court to argue the matter.  Fortunately, the Petition was granted, the copy of the Will admitted to Probate, the Personal Representative officially appointed to act for the Estate and Letters of Administration were issued to the Personal Representative to confirm her appointment.

We gave the Personal Representative the Letters of Administration and advised that she was now able to gather the assets of the deceased family member and begin to administer the Estate.  Furthermore, we instructed that she now had the authority to prepare the decedent’s house for sale, re-title the decedent’s vehicles and have the decedent’s house and personal property appraised.

A month or two later, while in the midst of moving furniture out of the decedent’s home, one of the movers dropped a small sofa and a secret compartment in the sofa fell onto the floor.  Low and behold the missing Will was found inside!   The personal representative called immediately to explain what happened and we obtained the Will so we could file it with the Estate’s file located at the Register of Wills.

This happens often.  Many years ago, after searching for days for a deceased client’s Will, her nephew (the executor) found it in a file called obsolete papers.  Apparently, she was concerned that her brother would find her Will and destroy it, but she figured out her brother would not bother to look in this file, but her nephew, a former lieutenant in the Army, was determined enough to look everywhere.   

What Should You Do?

In our estate planning practice, once the ink has dried on our clients’ Will, his or her signature has been witnessed and notarized, we instruct them to make certain the Will is kept safe and briefly explain what could happen.

That said, we are often asked, “How do you keep a Will safe?”  There are several ways to do this:

1. Place the Will in a safe deposit box and be sure to let a family member know where the key and your box are located (or, better yet, make a trusted family member as an authorized person on the safe deposit box).
   
2. File the original Will with the Register of Wills in your County (though some Counties will not do this anymore AND what happens if you move, will someone remember to go look at the Register of Wills where you had once lived?).
   
3. Let us retain the original Will in our fire proof Will safe (but note that some law firms will not do this) or
   
4. Keep the Will located in a safe place in your home such as a wall or fire proof safe and tell someone you trust where it is located.

The bottom line is that, in the event you pass away, someone needs to be able to find your original Will, locate your assets, and have access to your accounts, passwords, PIN numbers, emails and log-in names.  So, if you keep your original Will at home (which we do not recommend), do not keep the original in a secret compartment that no one would ever find, unless you tell your Personal Representative where it is.  We also advise against wrapping a Will in tin foil and keeping it in your refrigerator or freezer!

Finally, doing complete and comprehensive estate planning can also protect against the chance that your wishes will not be fulfilled.  In previous posts, we have discussed revocable living trusts and how to use them as your main estate planning document.  We will blog more about this in the future.

Under current federal bankruptcy code, an exemption applies for certain tax-qualified retirement funds and accounts including assets such as many 401Ks, annuity plans, IRAs, qualified governmental plans, deferred compensation plans (state and local) and some tax-exempt organizations.

However, a Bankruptcy Court has concluded that, unlike a debtor’s own traditional individual retirement account (IRA), a debtor’s inherited IRA is not an exempt asset of her bankruptcy estate under Bankruptcy Code §522(d)(12).  This ruling underscores the importance of having your personal finances and estate plan working together, including coordinating the beneficiary designation of tax-qualified retirement accounts, annuities and IRAs with your estate plan. 

The impact of this Bankruptcy Court’s ruling was that the debtor’s interest in the IRA which he inherited from his parent was fully accessible (and therefore taken) by his creditor.  This ruling is consistent with a number of court cases in various states which have held that a debtor’s inherited IRA was not protected from the debtor’s creditors.

If your estate plan is structured to help protect your heirs’ inheritance from their creditors, and if part of your assets include tax-qualified retirement accounts, annuities and IRAs, then you must take this Bankruptcy Court’s ruling into account when structuring your estate plan, by creating a standalone IRA Trust to be the beneficiary of your tax-qualified retirement accounts, annuities and IRAs.

Note these other important conditions:

• If an IRA owner designates his spouse as beneficiary of his IRA and dies before the account is exhausted, the surviving spouse may roll over the decedent’s IRA into the spouse’s own IRA, or elect to treat the decedent’s IRA as the spouse’s own IRA.   This avoids the impact of the ruling noted above.
  
• A designated non-spouse beneficiary can’t treat an inherited IRA as his own, but can make trustee-to-trustee transfers of the inherited amount to another IRA if the ownership of the new IRA is set up in the same way as the ownership of the old IRA, that is, in the name of the decedent for the benefit of the IRA beneficiary.  Thus, pursuant to the ruling above, this would subject the inherited IRA to the creditors of the designated non-spouse beneficiary.  In order to protect the IRA from the beneficiary’s creditors, the best approach is to create a standalone IRA Trust to be the beneficiary of the IRA.
  
• If the account owner dies before his required beginning date or RBD (which, for IRA owners, is Apr. 1st of the year following the year in which the owner attains age 70 1/2), the entire balance in a participant’s plan account must be:

-         distributed within five years after the account owner’s death; or

-         distributed to (or for the benefit of) the designated beneficiary, over the beneficiary’s life or over a period that doesn’t extend beyond his life expectancy.

• Slightly more liberal rules apply if the account owner dies after his RBD.

I have spoken out many times against “Do-It-Yourself” estate planning services - most recently in an article for Boomer-Living.com entiled, ”The Dangers of DIY Wills and Trusts - Packaged Estate Planning Documents Are a Big No-No.”  From LegalZoom and Suze Orman’s Will & Trust Kit to LegacyWriter and Build-A-Will, there are no shortage of companies and products promising “customizable” wills and other estate planning documents – at “a tiny fraction of the cost of an estate planning attorney.” 

There are many flaws with this “one-size-fits-all” model for estate planning:  Laws change.  Laws also vary from state to state.  Most importantly, only a well-experienced professional who is current on the laws and your unique circumstances, can provide you with the kind of security and accuracy crucial to having a solid estate plan.  It’s one of those life choices in which you really will get what you pay for.

A simple story underscores why:

There is an old story about a factory which shut down due to an equipment failure.  The owner of the factory called a renowned expert to rush to the factory to get things moving. The owner told him, “This shutdown is costing us $100,000 per day!”  The expert arrived, walked around the faulty machine, then took out a screwdriver and adjusted a thing or two.  Within moments the machine came back to life and the factory began to hum with activity.  The owner was thrilled—until he was given a bill for $10,000.  He roared, “But it took you less than 10 minutes to fix the machine—it cannot possibly cost $10,000!”  The expert calmly responded, “No, it took me a lifetime to know exactly where and how to use that screwdriver.  The bill is $10,000—but the value to you is $100,000 per day.”

Great food, family get-togethers, holiday cheer…estate planning?!?  While it may seem like a less than ideal topic for a fireside chat, estate planning is critically important and the holidays can present a golden opportunity to get things in motion.

Here are few things to consider:

The More, The Merrier – With siblings scattered across the country and grandkids away at college, it’s rare that families members are the in the same place at the same time.  Odds are that holiday get-togethers are the only exception.  Take advantage of having more of your loved ones under one roof so you can have the conversations you need to have with individuals or a group.

Don’t Be Left Out in the Cold - A common misconception is that estate plans are only important for the ultra wealthy - the Gates, Buffets and Rockfellers of the world.  Nothing could be further from the truth. Yet, more than 60% of all Americans die without one, leaving their estates to be divided and taxed according to predetermined federal and state laws, perhaps in ways they didn’t intend.  If this is the case, then unfortunately, no one will care about the best interests of your family, your heirs and your legacy. 

Ties that Bond – We all love the timeless gift-giving traditions of the holiday season – but that new tie, while nice, certainly isn’t legacy-building.  What do you want to be remembered for?  What do you want to pass on to the next generation?  Estate planning can go well beyond simply who/what will get your assets.  Other considerations include values, taxes, medical care, charitable gifts, educational trusts, pets and more.

Say “No” to Online Shopping – Buying a sweater online is one thing, but drafting a will online is another.  Think of drafting a Will online like trying to tackle your own electrical or plumbing problems.  It’s risky business.  Why chance your family’s future to an online estate planning service instead of hiring an experience professional to assist you?  If you draft a Will by yourself, and it has a problem, by the time it is discovered, it could be too late.  The stakes are too high.

Making a List, Checking It Twice - Even if you already have an estate plan, it needs to be reviewed at least every four years.  That said, if any of the following events occur, you should have your estate plan reviewed immediately: 

• A change in marital status
• The birth of a child
• A change in your state of residence
• A significant change in the value or character of your assets
• A change in intended beneficiaries
• The death of a beneficiary
• The death of a guardian, trustee, or personal representative named in your will
• A change in tax laws affecting federal (and your local state) estate tax deductions and calculations
• A change in privacy laws or other laws that affect the access to medical and financial information

The bottom line:  An outdated or inadequate plan is often worse than no plan at all.

Take time this holiday to discuss estate planning with your loved ones.  You’ll be glad that you did.

It is always tragic when someone dies.  In the past couple of months, well known individuals and celebrities have unexpectedly died - Farrah Fawcett, Michael Jackson, Billy Mays and Steve McNair.  It has now become known that Steve McNair did not have a Will or any sort of estate plan.  Besides his current wife and two children, he had two children from a previous relationship.  It is now up to the laws of Tennessee to determine who receives his assets and how and when they are distributed.   Given the probable size of his estate, the IRS may actually be the biggest beneficiary as a result of his death, receiving upwards of 45% of his assets.
 
Most of us do not think we are going to die tomorrow.  This is especially true of athletes.  The lesson that should be learned by these unfortunate deaths is that the future is unknown.  And, while there is a media circus surrounding the death of Michael Jackson, in the end, it will be determined that he created a conservative, private estate plan that will allow for the future wellbeing of his children, mother and others and or charitable causes close to him.
 
The bottom line is no matter how young or healthy you are, no matter your wealth or family situation, estate planning allows you to control who receives  your assets, allows you to determine who makes decisions for you and your young children, allows you to determine how and when your assets are distributed and finally, may prevent the IRS from receiving the lion’s share of your estate.

Now that the untimely death of Michael Jackson is turning into a custody battle brewing between the Jackson Family, the biological Mother of his children and possibly the Nanny, I believe it is important opportunity to mention how essential it is that parents name guardians for their children in the event of incapacity or death.

Many people are under the impression that estate planning is “just for the wealthy” or for the elderly.  This could not be farther from the truth.  Whether you have many assets or not, it is essential for families with children to clearly define who should care for your children if you are not able to so.  A court will normally honor the wishes of the parent to determine who should take care of the children. 

No one can predict how or when we will die, however, we can dictate how our children and our assets will be handled after your death with basic estate planning.  This includes appointing someone to make medical and financial decisions for you, if you are unable, as well as naming guardians for your children, for both the long and short term.  Again, if these decisions are not put in writing, you have left it up to a judge to make decisions for you, sometimes after a messy and costly court fight. 

This past winter, one of my clients, a single Mother with two teenage children suddenly died.  Because  thorough and complete estate planning had been done, a close family friend, who agreed to move into my client’s house, was named as the guardian and was able to immediately begin caring for the teenage children.

So use this sad and tragic passing of one of entertainment’s icons as a call to families to take control of your future and that of your children.  Do not wait to have basic estate planning, i.e., wills, advanced medical directives, correct beneficiary designations, power of attorneys and guardianship, documented so if something tragic happens, you have directed who should make decisions, who should care for your children and how your assets shall be used after your death.  And, at the same time, use the opportunity to document the values you want passed along and how you would like for them to be raised.  Don’t let the courts do this for you!

A California court has made the late Michael Jackson’s mother, Katherine Jackson, the temporary administrator of his estate pending a hearing next Monday.  Mrs. Jackson’s had petitioned for the status out of concerns that a host of third parties could try to steal from the estate.

In addition to various bank accounts, Mrs. Jackson and her attorney worry about Michael’s stake in the Sony-ATV Music Publishing Catalog - which includes Beatles’ works — thought to be the most important asset in the estate.

Right now, it’s uncertain whether Michael Jackson had a will as none of the family members were aware of one.

You wouldn’t think so, but many times celebrities dies without a comprehensive estate plan in place.  It does not surprise me that there are already allegations regarding inappropriate conduct by various parties.  I believe that this will be the tip of the iceberg. 

The lesson for us normal folks is to plan early and to make sure all assets are owned properly and that all retirement accounts have the proper beneficiary designations.  Everything should be coordinated and reflect the exact wishes of the individual.  Moreover, it is important that the people close to you know about your planning, though maybe not the exact details, and know who to call when the unfortunate happens.

In a very common scenario, a participant in an ERISA plan (any qualified retirement plan) names his spouse as the beneficiary of his pension plan. The parties subsequently divorce, and although the divorce decree purports to disclaim any interest the spouse may have in the pension, the participant fails to change his beneficiary designation. When the participant dies, how does the plan administrator know where to pay the pension funds?

The Supreme Court answered this question last week in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 US ___ (January 26, 2009).   Not surprisingly, the Court concluded that the plan administrator’s responsibility is to comply with the terms of the plan document, which in this case meant paying the benefits in accordance with the beneficiary designation.

What does this mean for you?  

Over the past 20 years, I have worked with thousands of individuals to prepare their estate plan and to administer their loved ones estates after death.  Many times the wrong person has been named as the beneficiary of a retirement plan, an IRA or a life insurance policy.  Luckily, when we are doing estate planning for a client, we are able to change the beneficiary designations to make sure that the right persons (and not a divorced spouse or forgotten friend or former companion) receive the proceeds and benefits after death. Sometimes, however, we only get involved after the death of a loved one and then it is too late. In these situations, many times the wrong person will receive the proceeds and benefits, and some times, even though the right person will receive the proceeds, it only happens after significant legal fees or taxes.  And sometimes a minor is named as the beneficiary, and then there are significant court fees and oversight and the minor receives full control at 18, when it may not be appropriate.

What should you do? 

Review your estate plan and do a beneficiary audit.  Review your Will or Trust to make sure the right persons receive your assets and make decisions for you.  Look at every one of your beneficiary designations and make sure that the right person is named to receive the proceeds.  If a minor is named, change the beneficiary to be a trust for the minor.

This is just one more lesson that estate planning is a process, and not a product.  Moreover, it should remind everyone that if you have not adequate estate planning, now is the time.

With Valentines’ Day upon us, love is in the air.  As a boomer and a romantic, I believe that marriage (even the second time around) is a wonderful thing.  That said, the attorney and the realist in me knows that sometimes financial and estate issues can get in the way.  Therefore, there are several things for people - particulalry boomers - to consider before remarrying.

Children from a First Marriage

Naturally, remarrying is more complicated when children are involved.   Two of the most common concerns are:  How will you care for your children financially while providing for a new spouse, and, how can you leave assets fairly between children from your previous marriage and a new spouse?   Sharing these and other concerns with your financial and estate planners is key when deciding on solutions that work for your new family dynamic.

Pre-Marital Agreements

No longer taboo, pre-marital agreements are becoming more and more mainstream - and with good reason.  As you probably know, the reality is that relationships don’t always work out like we expect them too.  Signing one is the difference between protecting your income and your children’s inheritance rights, and not.

Living Arrangements

With marriage, comes that little thing called logistics - such as where to live.  Should you move into your spouse’s house, and the unfortunate happen to them, how can you ensure that you won’t then be kicked out by your deceased spouse’s family?  Likewise, if something were to happen to you, would your spouse, children and/or step children be protected?

Medicaid

If one spouse goes into nursing home, then both spouses’ assets must be used.  So, it is important to be sure that there are sufficient assets or long term care insurance to care for an incapacitated spouse.  Medicaid is one area where state laws differ widely and it is important to work with an experienced local lawyer.

Estate Taxes

Of course, many tax laws have different provisions for married couples.  This is particularly important to understand when it comes to estate tax laws.  A good estate planning attorney should be able to guide you in understanding how the various local and federal estate tax laws may impact you after you remarry.  For example, it’s possible to defer estate taxes when married due to the unlimited marital deduction.  You could even create a trust for your spouse that will qualify for the unlimited marital deduction (and therefore defer estate taxes), while still making sure that any unused assets at your spouse’s death will be given to your children.

Pensions / Social Security

Often overlooked, if one or both spouses are getting a pension, then the new spouse may be entitled to survivor pension.  The same goes for social security.

ERISA Plans / IRA

Here’s where it pays to have an estate planner who is comfortable working in partnership with the financial planning community.  You may need or want a waiver of Employee Retirement Income Security Act (ERISA) plans which has to be done after marriage.  The same goes for IRAs in some states.  In any event, getting remarried is a wonderful opportunity to make sure that the beneficiary of your retirement plans, IRAs and life insurance is correct.  Too many times, divorced spouses forget to remove their former spouse as a beneficiary of their retirement plans, IRAs and life insurance.

Credit Cards and Other Debts

Especially in second marriages, keep your debts and credit cards separate.  The worse scenario would be for your spouse to die leaving you responsible for his or her debts and credit card balances, while leaving all the assets to the children from another marriage. 

The bottom line?  If you’re lucky enough to have once again found love, congratulations!  By all means, enjoy it!  Just remember to do your due diligence before you walk down the aisle and take the steps necessary to protect everything you’ve worked for your entire life.  It’s not “unromantic” – it’s smart.