King & Wood, P.A.

How Can You Disinherit Someone and Be Sure it Sticks?

“Parents may delay creating an elder law estate plan, because of the in-law issue. Some parents are unfortunately estranged from an adult child, only because of the problematic son-in-law or daughter-in-law.”

Let’s say you want to leave everything you own to your children, but you can’t stand and don’t trust their spouses. That might make you want to delay making an estate plan, because it’s a hard thing to come to terms with, says a recent article “Dealing with disinheritance, spouses” from the Times Herald-Record. There are options, but make the right choice, or your estate could face challenges.

Some people choose to leave nothing at all for their child in the will, so that if there is a divorce or if the child dies, their assets won’t end up in the daughter or son-in-law’s pocket. For some parents, particularly those who are estranged from their children, this can create more problems than it solves.

Disinheriting a child with a will is not always a good idea. If you die with assets in your name only, they go through the court proceeding called probate, when the will is used to guide asset distribution. The law requires that all children, even disinherited ones, are notified that you have died, and that probate is going to occur. The disinherited child can object to the provisions in the will, which can lead to a will contest. Most families engaged in litigation over a will become estranged—even those that weren’t beforehand. The cost of litigation will also take a bite out of the value of your estate.

A common tactic is to leave a small amount of money to the disinherited child in the will and add a no-contest clause in the will. The no-contest clause expressly states that anyone who contests the will loses any right to their inheritance. Here is the problem: the disgruntled child may still object, despite the no contest clause, and invalidate the will by claiming undue influence or incapacity or that the will was not executed properly. If their claims are valid, then they’ll have great satisfaction of undoing your planning.

How can you disinherit a child, and be sure that your plan is going to stand up to challenge?

A trust is better in this case than a will. Not only do trusts avoid probate, but (unless state law requires otherwise at death) the children do not receive notice of the creation of a trust. An inheritance trust, where you leave money to your child, names a trustee to be in charge of the trust and the child is the only beneficiary of the trust. The child might be a co-trustee, but they do not have complete control over the trust. The spouse has no control over the inheritance, and you can also name what happens to the assets in the trust, if the child dies.

This kind of planning is called “controlling from the grave,” but it’s better than not knowing if your child will be able to protect their inheritance from a divorce or from creditors.

With a national divorce rate around fifty percent, it’s hard to tell if the in-law you welcome with an open heart, will one day become a predatory enemy in the future, even after you are gone. The use of trusts can ensure that assets remain in the bloodline and protect your hard work from divorces, lawsuits, creditors and other unexpected events.

Reference: Times Herald-Record (June 6, 2020) “Dealing with disinheritance, spouses”

 

Update Will at These 12 Times in Your Life

“It is also important to realize that it isn’t merely ‘why’ you are updating your will, but ‘when’ you are updating that can make all the difference.”

Estate planning lawyers hear it all the time—people meaning to update their will, but somehow never getting around to actually getting it done. The only group larger than the ones who mean to “someday,” are the ones who don’t think they ever need to update their documents, says the article “12 Different Times When You Should Update Your Will” from Kiplinger. The problems become abundantly clear when people die, and survivors learn that their will is so out-of-date that it creates a world of problems for a grieving family.

There are some wills that do stand the test of time, but they are far and few between. Families undergo all kinds of changes, and those changes should be reflected in the will. Here are one dozen times in life when wills need to be reviewed:

Welcoming a child to the family. The focus is on naming a guardian and a trustee to oversee their finances. The will should be flexible to accommodate additional children in the future.

Divorce is a possibility. Don’t wait until the divorce is underway to make changes. Do it beforehand. If you die before the divorce is finalized, your spouse will have marital rights to your property. Once you file for divorce, in many states you are not permitted to change your will, until the divorce is finalized. Make no moves here, however, without the advice of your attorney.

Your divorce has been finalized. If you didn’t do it before, update your will now. Don’t neglect updating beneficiaries on life insurance and any other accounts that may have named your ex as a beneficiary.

When your child(ren) marry. You may be able to mitigate the lack of a prenuptial agreement, by creating trusts in your will, so anything you leave your child won’t be considered a marital asset, if his or her marriage goes south.

Your beneficiary has problems with drugs or money. Money left directly to a beneficiary is at risk of being attached by creditors or dissolving into a drug habit. Updating your will to includes trusts that allow a trustee to only distribute funds under optimal circumstances protects your beneficiary and their inheritance.

Named executor or beneficiary dies. Your old will may have a contingency plan for what should happen if a beneficiary or executor dies, but you should probably revisit the plan. If a named executor dies and you don’t update the will, then what happens if the second executor dies?

A young family member grows up. Most people name a parent as their executor, then a spouse or trusted sibling. Two or three decades go by. An adult child may now be ready to take on the task of handling your estate.

New laws go into effect. In recent months, there have been many big changes to the law that impact estate planning, from the SECURE Act to the CARES act. Ask your estate planning attorney every few years, if there have been new laws that are relevant to your estate plan.

An inheritance or a windfall. If you come into a significant amount of money, your tax liability changes. You’ll want to update your will, so you can do efficient tax planning as part of your estate plan.

Can’t find your will? If you can’t find the original will, then you need a new will. Your estate planning attorney will make sure that your new will has language that states revokes all prior wills.

Buying property in another country or moving to another country. Some countries have reciprocity with America. However, transferring property to an heir in one country may be delayed, if the will needs to be probated in another country. Ask your estate planning attorney, if you need wills for each country in which you own property.

Family and friends are enemies. Friends have no rights when it comes to your estate plan. Therefore, if families and friends are fighting, the family member will win. If you suspect that your family may push back to any bequests to friends, consider adding a “No Contest” clause to disinherit family members who try to elbow your friends out of the estate.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”

 

Divorce Reveals How Trusts are Used by the Ultra-Wealthy

 

“In a lawsuit, Marie Bosarge claims that her estranged husband, Texas billionaire Ed Bosarge, created trusts ‘to hide income and property and to hold what would otherwise have been personal income and assets.’”

South Dakota has become a domestic mini-Switzerland for wealthy people who want to shield their assets. Texas billionaire Ed and Marie Borsage’s divorce is shining an unwanted spotlight on both his finances and the use of trusts in the state, according to CNBC’s recent article “Billionaire Divorce uncovers secretive world of trusts in South Dakota.”

Married for three decades, the Borsage’s accumulated 12 homes and an unusual collection of high- priced items, like an Egyptian mummy and Marilyn Monroe’s personal effects. It was quite a lifestyle. However, when Ted filed for divorce, Marie discovered that everything had been put into a special trust that shielded assets from any claims. After paying her legal fees, she may end up with nothing from the 30-year marriage.

Ed’s attorneys are making the claim that all of the assets are controlled by the trust, so they are not marital assets. The total value of the couple’s marital property, which would be subject to division in a divorce, is about $12 million. Marie’s legal bills are already in the millions.

The unpleasant nature of the divorce offers a rare look into the highly secretive world of asset trusts in South Dakota. The protective trust laws of the state make it a haven for wealthy families from the U.S. and around the world. Experts say that about $250 to $900 billion is now being held by South Dakota trusts, from Chinese billionaires, Europeans seeking to avoid taxes and Americans looking to shield wealth from spouses.

When the two married in 1989, they had no wealth. Ed began a commodities trading business and Marie was one of the first employees. They became wealthy. However, in 2012, according the lawsuit, Ed began an affair and filed for divorce in 2017. That was when Marie learned that he had been transferring their business and personal assets into a complicated series of trusts, first in Bermuda and then in South Dakota. Marie was originally a beneficiary of the trust, but then before the divorce, Ed started transferring assets and she was removed as a beneficiary.

According to South Dakota law, he was not required to notify her of the changes. Trusts in South Dakota are also perpetual. Therefore, a wealthy family can put assets into a trust that are held in perpetuity, rather than a limited period of time. The state also gives trusts sweeping privacy and asset-protection against creditors, business partners, lawsuits—and ex-spouses. South Dakota has no inheritance, capital gains or income taxes. It’s an extremely attractive state for people who want to keep their business private and protected.

The state also has strict information protections, so there are nondisclosure orders on all of the attorneys and all of the filings in the divorce case.

Reference: CNBC (May 6, 2020) “Billionaire Divorce uncovers secretive world of trusts in South Dakota.”

Extra Social Security Benefits for Divorced People

“While it's not the best idea to expect your benefits alone to support you in retirement (after all, Social Security is only designed to replace around 40% of your pre-retirement income), some retirees have no other option but to depend on their monthly checks to cover the majority of their expenses.”

According to the Social Security Administration, as many as 21% of married couples depend upon their Social Security checks for at least 90% of their retirement income. The same is true for almost half of all single beneficiaries. Therefore, if you are expecting Social Security to make up the larger share of your income during retirement, don’t overlook any possible additional benefits, says the article “Divorced? You could Be Owed Extra Social Security Benefits” from The Motley Fool.

People who have been divorced may have more due them than they expect.

A married person may be eligible to receive Social Security benefits based on their spouse’s work record, even if they themselves have never worked. However, divorced people are sometimes entitled to benefits based on their ex-spouse’s records, depending upon their situation.

There are a few eligibility requirements. For starters, the marriage must have lasted at least ten years. Second, you can’t have remarried—although if your ex has remarried, this won’t affect your ability to claim based on their record. Finally, the amount received in benefits based on your own work history must be less than the amount that you’d receive in divorce benefits, based on your spouse’s record.

You’ll also need to be at least 62 to start claiming benefits, and in most cases, your ex needs to have started taking benefits before you can receive monthly benefits. There is an exception: you have been divorced for at least 24 continuous months and your spouse is eligible to receive benefits, but just hasn’t started claiming them yet.

Note that you won’t receive the full benefit amount for regular Social Security benefits or those based on your ex’s work history until you claim at your full retirement age (FRA), which is 66, 66 plus a few months or 67, depending upon your birth year. Claim earlier than that, and benefit checks will be smaller, as they would be if you were claiming your own benefits before FRA.

If you are indeed eligible to collect divorce benefits, you may be able to collect additional benefits based on the ex-spouse’s record on top of your own benefits. You won’t get both. However, what you may get is your own benefits, plus a portion—up to 50%—of the amount your ex-spouse is eligible for, if you claim at his or her FRA.

Let’s say you’re receiving $800 a month based on your work record at your FRA. Your ex is eligible to receive $2,000 at her FRA. If you meet all the right requirements, you could collect 50% of her benefits in addition to yours. You could receive $1,000 a month: your $800 and an additional $200 in divorce benefits.

Bear in mind that Social Security is a big government organization, and likely will not make this type of adjustment on your behalf. You’ll have to advocate for yourself, filing for the benefits you believe you deserve and you may need to make more than a few phone calls. However, the additional income would be well worth it.

Reference: The Motley Fool (Jan. 30, 2020) “Divorced? You could Be Owed Extra Social Security Benefits,”