Texas Estate Planning

Does the Way I Title My Assets Have an Impact on My Estate?

The way in which you take title to assets can affect your estate, taxes and perhaps the disposition of the asset if a couple divorces. Many couples want assets to be titled simply in the event something happens to one, so the other spouse can take possession immediately without taxes or complications. Joint ownership may be the simplest way to meet most of these objectives. However, this can get complicated if any number of things happen, such as divorce, second marriage, children from multiple marriages, adoption and blended families of all types.

It’s critical to be educated on the different types of ownership, so you know when a change may be needed. Here are the main options:

Holding Assets in Your Own Name is simple and inexpensive. However, if you become incompetent, those assets might be mismanaged. At your death, individually owned assets may have to go through probate.

Joint Tenants with Right of Survivorship is when one co-owner dies, all assets held this way automatically pass to the survivor. One joint owner can take over if the other is incapacitated, and jointly held assets don’t go through probate.

Tenants in Common means there’s a divided interest, although none of the owners may claim to own a specific part of the property. At the death of one of the joint owners, the share owned by the deceased must pass through their will to determine ownership. The surviving joint owner doesn’t automatically own the entirety of assets.

Tenancy by the Entirety is a type of joint ownership similar to rights of survivorship for married couples. It lets spouses own property together as a single legal entity. Ownership can’t be separated, which means creditors of an individual spouse may not attach and sell the property. Only creditors of the couple may make claims against the property.

With Entity Ownership, you might create a trust, a partnership (such as a family limited partnership), or a limited liability company (LLC) to hold assets. These entities may provide protection from creditors and tax benefits.

Community Property may only be used by married couples in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Each person owns an undivided interest in the entire property. When a spouse dies, the survivor automatically receives the entire interest, so there’s no need for probate. Community property can’t be controlled by a person’s will or trust.

Ask an experienced estate planning attorney to review your estate plan and how assets are titled.

Reference: FedWeek (July 27, 2022) “How Assets Are Titled Can Make a Big Difference”

Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

This is a common question with second (or third marriages) and blended families. Questions frequently arise about Social Security, investments and savings, when the husband is divorced from the children’s mother and is paying child support until each child turns 18.
Nj.com’s recent article entitled “Are my husband’s kids from another marriage due assets when he dies?” says that these questions demonstrate why estate planning is critical to revisit after a divorce. You can take action to make certain that you’re taken care of, but if you don’t do this at the time of the divorce, it could be too late.
Let’s look at what you should know about beneficiaries and wills. First, beneficiary designations supersede a will. Make sure that all beneficiaries and contingent beneficiaries are consistent with your wishes. There are beneficiary designations on retirement accounts, pensions, life insurance policies, annuities and other accounts that take precedence over what may be stated in a will.
While New Jersey does not provide for beneficiary designations on certain assets like a house, vehicles, and real estate, many other states do. For assets without a beneficiary, it’s important to determine the way in which they’re titled.
The titling of assets has an effect on how the assets will be distributed after death. Thus, when married again, spouses should review and update their wills to have an idea of how a spouse’s estate would be disbursed at his or her death.
If a husband is paying child support, divorce decrees will often dictate that he purchase life insurance to cover that obligation upon his death. Therefore, there may be a life insurance policy for the children from a first marriage.
With Social Security, if a spouse remains unmarried after the spouse’s death, he or she can claim a survivor spousal benefit as early as age 60, and if he or she is caring for the spouse’s children from the first marriage who are under 16 years of age, he or she may be entitled to receive a payment earlier. The deceased spouse’s unmarried children can also claim a survivor benefit until age 18, or longer if in high school or disabled.
Reference: nj.com (Aug. 4, 2021) “Are my husband’s kids from another marriage due assets when he dies?”

What Do I Need to Know about Second Marriage Estate Planning?

AARP’s recent article entitled “Remarried with Children? 5 Estate Planning Mistakes to Avoid” says that most mean well and want their spouse to inherit their possessions when they die, then want their heirs to split what's left when the spouse dies. Here are five mistakes to avoid and to prevent fighting and hard feelings after you are gone.
Mistake #1: Failing to change beneficiaries. This is one of the most common mistakes. An advantage of changing the name of the beneficiary, is that the money will go directly to the intended person, typically the surviving spouse, bypassing the probate process. Review all of your financial accounts to be certain that your spouse is designated the beneficiary, if that is your intention. You should also check all life insurance beneficiaries because these payouts also do not go through probate.
Mistake #2: Failing to change your will. A will states who gets the rest of the assets that you and your spouse accumulated during your lifetimes. Update your will to avoid handing your home to your ex-spouse. People on their second marriage usually decide that the surviving spouse gets all the assets, and upon the death of the second spouse, the remaining assets will be divided evenly among the children. However, this assumes that everyone will still be getting along in the future, and that your spouse, upon your death, will not write a new will that removes your side of the family from the estate. You should also plan in advance who will get important family items, no matter if their value is sentimental or otherwise. You do this with a codicil to your will or a letter of instruction to your executor.
Mistake #3: Treating all heirs equally. There is no law that says all children must be treated equally. There are many reasons why parents do not treat children equally, such as when there is a child with special needs. In that instance, you should talk to your spouse about how to ensure that child is protected, perhaps through an ABLE (Achieving a Better Life Experience) account or a trust. In some situations, a child may have an addiction or a gambling problem. Some parents will create a “spendthrift trust” which disburses money at regular intervals to the beneficiary and deters creditors from getting the money in the trust.
Mistake #4: Waiting until you are gone to give. If you are planning to leave money to your children, you might think about giving it to them now, rather than in your will. The IRS allows you to give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. Your spouse may also give the same amount.
Mistake #5: Not Using an Experienced Estate Planning Attorney. If you are older and on your second marriage, chances are that your life is not uncomplicated. Ex-spouses, blended families and comingled assets create complexity, as well as having a child with special needs or an aging parent. It is smart to invest the time and money in creating a comprehensive estate plan with the help of an experienced estate planning attorney.

Estate Planning and a Second Marriage

In California, a community property state, a resident can bequeath (leave) 100% of their separate property assets and half of their community property assets. A resident may only bequeath the entirety of a community property asset to someone other than their spouse with their spouse’s consent or acquiescence. This can be extremely important to those in second marriages with prior children.
Wealth Advisor’s recent article entitled “Estate planning for second marriages” asks, first, does the individual’s (the testator) spouse even need support? If they don’t, a testator typically leaves his or her separate property assets directly to his or her own children. However, because the surviving spouse is an heir of the testator, his or her will and/or trust must acknowledge the marriage and say that the spouse is not inheriting. Otherwise, the surviving spouse as heir may be entitled either to a one-half or one-third share in the testator’s separate property, along with all of the couple’s community property assets. The surviving spouse would inherit, if the testator died intestate (with no will) or he or she passed with an outdated will he or she signed before this marriage that left out the current spouse.
If the spouse needs support, consider the assets and family relationships. Determine if the assets are the surviving spouse’s separate property from prior to marriage or from inheritance while married. It is also important to know if the testator’s spouse and children get along and whether it’s possible for the beneficiaries to inherit separate assets. If the testator’s surviving spouse and children aren’t on good terms and/or are close in age, and if it’s possible for separate assets to go to each party, perhaps they should inherit separate assets outright and part company. If not, it can get heated and complicated quickly. For example, the testator’s house could be left to his or her children and a retirement plan goes to the testator’s spouse.
If that type of set-up doesn’t work, a testator might consider making the spouse a lifetime beneficiary of a trust that owns some or all of an individual’s assets. A trust requires careful drafting, so work with an experienced estate planning attorney.
Next, determine if the children need support, and if so, what kind of support, such as Supplemental Security Income. Also think about whether the children can manage an outright inheritance or if a special needs or a support trust is required.
This just scratches the surface of this complex topic. Talk to an experienced estate planning attorney about your specific situation.
Reference: Wealth Advisor (Feb. 23, 2021) “Estate planning for second marriages”

The Impact of Divorce on Retirement

It is almost impossible to end a marriage and to leave retirement savings intact. Between the cost of legal fees and the division of assets and households with one income instead of two, the cost of divorce is high. As CNBC reports in “This move is almost as bad for your retirement savings as the Great Recession was,” divorce puts people’s retirements at risk and some folks have to work many more years as a result.

 Current statistics show that approximately 40% of all marriages end in divorce. Researchers at Boston College behind the National Retirement Risk Index examined how likely individuals are to maintain their standard of living, once they retire. As of 2016, half of working-age households were reported to be at risk. Divorce pushes up a retirement risk for a person by 7 percentage points, while the 2008 financial crisis added 9 points.

Here are more reasons why divorce deals a tough blow to retirement:

• In addition to legal fees, divorce proceedings pull people away from work and can have an impact on their earnings abilities, especially women.
• Many divorces lead to the sale of the family home, which creates a  major financial burden. If your marriage falls apart when the housing market does, the impact will be even worse.
• It’s more expensive to run two households, than it is to run one.
• Tax rates change when couples divorce. 

Dividing up a 401(k) when only one spouse was working can be tricky. You’ll need a court order known as a QDRO (a domestic relations order) to divide the account. The nonparticipating spouse of a 401(k) can typically receive funds from their ex’s as cash and not have to pay a tax penalty for the early withdrawal.  However, that money should be set aside for retirement. The money is often used to pay off debt or to fund the purchase of a new home. That means there is much less available for retirement.

Once the financial dust has settled, experts recommend reviewing both your retirement plan and estate plan. You’ll want to make changes on documents, including life insurance policies and any assets where your former spouse was listed. There may be court orders concerning retitling accounts. Speak with your estate planning attorney, to make sure your estate plan matches your new marital status.

Reference: CNBC (June 28, 20918) This move is almost as bad for your retirement savings as the Great Recession was”

What Causes Gray Divorces?

Studies have shown that for the youngest demographics, the divorce rate in the U.S. has declined from what it was a couple of decades ago. However, for older age groups, including those over the age of 50 the divorce rate has increased.

There have been several theories about what is behind the rise in divorce for people over 50, often called "Gray Divorces." One of the most common theories is that these divorces are the result of marriages that have been rocky for years and the couple chose to stay married until their children were out of the home.

On the other hand, research now suggests that is probably not the case as the Institute for Family Studies discussed in "Who is at Risk for a Gray Divorce? It Depends."

The research found that children leaving the home did not seem to be a factor in the increase in gray divorces. Instead, divorce was deemed more likely in couples of lesser means and for couples who were not on their first marriage.

The quality of an individual marriage was also a factor. For example, how well the couple enjoyed their free time together, plays a role in whether they get divorced.

Figuring out why older people are getting divorced at a more frequent rate is important for public policy.

Single elderly people have higher rates of poverty than their married peers. They also have more difficulty finding a support network for needed care.

While this study is not definitive, it gives important clues for policy makers to start addressing the problem of gray divorce.

Reference: Institute for Family Studies (May 1, 2017) "Who is at Risk for a Gray Divorce? It Depends."

After a Divorce Change Your Estate Plan

People react in a couple of different and predictable ways when their divorces are finalized. Some people are sad while others are elated. Nearly everyone, however, thinks that after a judge signs an official decree of divorce, everything is finalized and they are legally free of their ex-spouses.

That is not necessarily the case if you have any end-of-life or estate planning documents.

A recent Forbes article titled “The First Thing You Must Do When Your Divorce Is Final” illustrates this concern.

If your ex-spouse’s name is still on estate planning documents, then many of them will still be legally enforceable. For example, if your ex-spouse is named as a beneficiary of a life insurance policy or a trust, your ex-spouse will still be a beneficiary until the documents are changed.

If your ex-spouse is named as a power of attorney, then your ex-spouse will still have that authority. The one document that might not still be valid as written is a will as many states will strike any will provisions that include an ex-spouse if the will was created before the divorce was finalized.

Although not changing your will to exclude an ex-spouse means you do not get to determine who should get the assets instead.

What this means is that after getting a divorce you need to review your estate plan and make any necessary changes. The one caveat? You should not disobey any orders made during the divorce.

For example, if you were required by the terms of the divorce to leave your wife as a beneficiary of a retirement policy, then you must continue to do so for as long as required.

Reference: Forbes (Aug. 14, 2016) “The First Thing You Must Do When Your Divorce Is Final.”

How Not to Protect Your Assets in a Second Marriage

The New York Post recently reported on a bizarre lawsuit in "Husband secretly divorced wife after wedding 'to protect assets'." It seems some 20 years ago Cristina Carta Villa, now 59 years old, married Gabriel Villa, now 90 years old. According to Cristina, as far as she knew the two of them were still married and they have lived together ever since. 

However, when a tax bill for their Manhattan home arrived she grew suspicious when her name was not listed as an owner of the property. Gabriel is alleged to have taken her name off the deed. He did this by claiming that the couple was not married. 

Apparently, a few months after the wedding ceremony, Gabriel Villa hired attorneys in the Dominican Republic to divorce the couple in that country even though the two of them were not living there and never appeared in court. 

Cristina Villa claims that Gabriel is now trying to sell the Manhattan home to his adult daughter and cut her out. She is suing him to have the divorce she did not know about invalidated.

Perhaps one of the strangest aspects of this case is that Gabriel Villa is a lawyer. Consequently, he should have known that there were far better ways to shield some assets from his wife if he wanted to make sure they went to his daughter from a previous relationship. 

For starters, before getting married Gabriel could have arranged for a prenuptial agreement. After marriage he still could have asked for a postnuptial agreement. Despite those two options, Gabriel should have remembered that a spouse does not necessarily need to inherit all of the assets of the deceased spouse. In fact, the surviving spouse is entitled to an elective share, but any assets beyond that can be distributed however the deceased wants as part of an estate plan. 

Reference: New York Post (Jan. 24, 2016) "Husband secretly divorced wife after wedding 'to protect assets'."

 

Rising Gray Divorce Rate Problematic

Researchers at Bowling Green State University recently published a study that looked into the effects of what are known as "gray divorces." These are divorces that occur when the spouses are over the age of 50. 

What the researchers found is alarming, if not necessarily surprising. 

Since 1990, the divorce rate in the United States has not changed significantly. On the other hand, the gray divorce rate has doubled. 

One of the main problems when an older person divorces is the increased likelihood they will spend their elderly years in poverty. 

The Elder Law Prof Blog reported on this study in "The Rising Impact of Unpartnered Older Adults and 'Gray Divorce'."

As anyone who has ever been through a divorce knows, divorce has a high financial cost. After a divorce both of the ex-spouses normally take awhile to recover from those costs completely. 

For many people who get divorced after the age of 50 there simply is not enough time to recover before they reach the age of retirement. 

In some cases this eventually leads to poverty.

The more elderly people living in poverty the more pressure there is on the elder law system and the programs designed to assist the elderly. That will impact society in general.

Rising elderly poverty rates also create problems for younger generations.

This is because they will need to shoulder more of the financial burden of helping elderly family members without an eventual inheritance to recoup that outlay.

If you are contemplating a "gray divorce," you may want to look twice before you leap.

Reference: Elder Law Prof Blog (Jan. 15, 2016) "The Rising Impact of Unpartnered Older Adults and 'Gray Divorce'."

 

Estate Planning Versus a Divorce Decree

When you think of all the possible things that could be ordered in a decree of divorce, requiring one of the parties to maintain life insurance for a specific beneficiary is probably not one of the first things that come to mind. However, that order is made all the time and it is often the cause of lingering resentment for the ex-spouse who is ordered to pay it. 

For example, what if one spouse is ordered to pay the other spouse periodic payments? This order may not be for ongoing support but as the best way to make an equitable division of property. Sometimes the spouse who is ordered to pay might also be ordered to take out a life insurance policy and designate the other spouse as a beneficiary. That way if the paying spouse passes away before all of the payments are made, then the life insurance can be used to make the non-paying spouse whole.

A problem with this is that people often try to get around these orders. How? By designating someone else the beneficiary of the life insurance policies and not making any offsetting changes to their estate plans. 

Recently, Market Watch answered what happens in those situations in "Can I leave my stepchildren nothing if my husband dies?" 

A reader asked Market Watch a question about her husband's life insurance. It seems that as part of the divorce decree from a previous wife he was ordered to maintain a life insurance policy with his children as beneficiaries until those children reached the age of 23. The policy however listed only the new spouse as a beneficiary. 

He had no will and the new spouse wondered if she could keep the insurance money or must she give it to the stepchildren if her husband did pass away.

The answer to the woman's question and other similar questions is simple. 

The terms of the divorce can be enforced. The children could ask to have the man held in contempt of court and file a claim against the estate for the amount of the life insurance.

Solution? If her husband is insurable, then he should take out a new policy and designate her as the beneficiary.

Reference: Market Watch (Jan. 12, 2016) "Can I leave my stepchildren nothing if my husband dies?"