King & Wood, P.A.

How Estate Planning Protects Unmarried Couples

“It is very important for unmarried couples to execute estate planning documents to make their wishes clear concerning the rights and responsibilities of their significant other.”

Many couples make the choice not to wed, even after being together for decades, for personal or financial reasons. For example, some clients don’t marry so as not to impact their children’s inheritance, while others would rather not bother with the legalities, says a recent article, “Estate Planning for Unmarried Couples” from My Prime Time News. In some cases, marriage would cause the couple to lose pension or Social Security benefits, if they remarried.

However, unmarried couples must take extra care to have estate planning documents in place to make their wishes clear and to protect each other in case of incapacity, serious illness and, ultimately, death.

From any statutory priority, a significant other does not have the legal rights granted to a spouse to serve as a personal representative or executor for their loved one’s estate. In addition, there is no statutory right to inherit property, including any family allowance or exempt property allowance.

The significant other also has no rights regarding acting as guardian or conservator for their partner and no ability to make medical decisions, if they become incapacitated or disabled.

All of these issues, however, can be resolved with the help of an estate planning attorney. Both partners should execute a will, health care power of attorney, general power of attorney and a living will to protect each other.

The last will and testament designates a personal representative or executor who will be in charge of the decedent’s estate and inherit the person’s assets. With no will, a partner will inherit no assets, unless they are owned jointly or the partner is a named beneficiary.

Having a health care power of attorney and a financial power of attorney gives a partner the power to make decisions if their loved one becomes incapacitated. In addition, these power of attorney documents are necessary for adult children to have priority in making these decisions, and guardianship proceedings will be required if there are no children or family members.

Disputes between the adult children of unmarried couples are common if a comprehensive estate plan still needs to be completed. For example, imagine a partner of many decades becoming too ill to communicate their end-of-life wishes. Even after a lifetime together, the adult children will have the legal upper hand, regardless of what the couple has discussed as their wishes for this situation.

It may be challenging for unmarried couples to discuss their living arrangements and family dynamics. However, the experienced estate planning attorney has met with and helped families of all kinds and will have the knowledge to prepare an estate plan to address all family dynamics.

Once this work is done, the couple can rest easy, knowing they have protected each other in the best and worst circumstances.

Reference: My Prime Time News (May 1, 2023) “Estate Planning for Unmarried Couples”

Why Should I Name a Beneficiary?

“Lewis established an irrevocable trust, in which he named ‘his son’s spouse’ as a beneficiary. At the time Clark, the son, was married to Vivian.”

For five years, Lewis, who was also trustee of the trust, distributed funds to Vivian, his daughter in law. However, shortly after Lewis passed away, Clark and Vivian divorced. Clark married Sophia, and the problems began, according to the article “Which spouse gets the benefit?” from Glen Rose Reporter.

As a successor trustee, Clark started making the annual distributions from the trust to his new spouse, Sophia. Vivian filed suit, claiming these funds were intended for her. However, the trust directions only said, “his son’s spouse.” Did the phrase mean a particular person or the person who was Clark’s spouse? What did Lewis want to happen to the funds? For obvious reasons, his wishes could not be determined.

This fact pattern is from a real case, Ochse v. Ochse, filed in San Antonio, Texas. The trial court determined that Lewis’ wish was to benefit his son’s ex-spouse, who was his daughter-in-law when the trust was confirmed. An appellate court affirmed the decision.

Was the length of the first marriage part of the court’s decision? Clark had been married to Vivian for thirty years, which is likely to have been a part of the father’s decision. Clark had only been married to his second wife for seven years.

What if the father was alive and able to declare his intentions? It might not have made a difference. The court in this case found the term “son’s spouse” to unambiguously mean the spouse at the time the trust was created.

When a term is found to be unambiguous, there’s no evidence to question its meaning. So even if Lewis were alive and well, the court would not have let his intention be heard.

This kind of situation is seen often when a life insurance policy is left to a first spouse, the couple divorces and the beneficiary on the policy was never updated. Most of the time, the ex-spouse receives the proceeds from the life insurance.

In the case of Ochse v. Ochse, the matter would have been simplified if Lewis had named his daughter-in-law by name as the beneficiary of the trust. Clark might still have tried to change the terms, but it would have been clear who the intended beneficiary was.

No one likes to imagine their children divorcing, especially when the parents have a good relationship with the daughter or son-in-law. However, this needs to be taken into consideration when naming beneficiaries. If you adore your daughter-in-law and want her to receive an inheritance from you, then make sure to name her as a beneficiary. If you are concerned the marriage may not last, talk with an estate planning attorney about creating a trust to protect inheritances from being lost in a divorce.

Reference: Glen Rose Reporter (Dec. 17, 2021) “Which spouse gets the benefit?”

Collecting Social Security from Divorced Spouse

“It’s always smart to maximize your Social Security benefits, and if you are divorced, one way to do that might be to take them based on your ex’s earnings record. Here are some of the rules on how that works.”

Any divorce is tough, but late in life divorce presents special challenges, even as it becomes more and more common. While divorce in general is declining in America, the divorce rate among Americans aged 50 and up has nearly doubled since the 1990s, and nearly tripled (!) for those over age 65. A recent article from Kiplinger entitled “Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How” contains valuable information for those considering or in the midst of a gray divorce.

Most importantly, yes, you can collect Social Security (SS) benefits based on the earnings of your ex, if you meet these requirements:

• At least 62 years old.
• Currently single.
• Were married to the ex-spouse for at least ten years.
• The benefit you would receive from your own work history is less than the benefit you’d receive from your former spouse’s work history.
• Your ex-spouse qualifies for Social Security benefits.

For all spouses, including exes, you may receive up to 50% of the amount your spouse or former spouse would receive in benefits at their full retirement age. Note that this is not in addition to your own benefit. Your benefit must also be lower than half of your ex’s benefit, in order for this rule to apply.

Let’s say your own monthly SS check would be $1,000. If the check of your ex-spouse would be $1,500, then you would not be eligible for former spousal benefits ($1,000 is more than $750, which is half of $1,500).

Timing is another factor in Social Security, for benefits from your own earnings or from an ex-spouse. Your benefits at age 62 are less than what you are eligible for at full retirement age. To get the full 50% of your ex’s benefits, you must wait until your own full retirement age. Unlike applying on your own earnings record, waiting to apply for your ex-spouse’s earnings does not increase after full retirement age.

If your ex is deceased, you may be eligible for the same survivor benefits as current spouses, which may mean you could receive the full amount of your ex’s benefits, rather than half. Your marriage must have lasted at least ten years, and the amount has to be greater than what you would receive based on your own earning records. However, there is one major difference: you can start receiving survivor benefits as early as age 60, and if you are disabled, at age 50.

When applying for benefits on an ex’s record, you’ll need to provide a fair amount of information about yourself and your work history. That includes a birth certificate, proof of citizenship, if you were not born in the U.S., military discharge papers, if you served before 1968, W-2 forms and/or self-employment tax returns, your marriage certificate and final divorce decree. Some of the documents will need to be originals.

There are a number of ways to maximize your Social Security benefits, regardless of your marital status. It’s a good idea to learn all you can about the options before you retire, so you can receive the benefits you deserve.

Reference: Kiplinger (May 13, 2021) “Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How”

What Is Family Business Succession Planning?

“If you plan to pass your business to your offspring, there is more to keep in mind when creating your succession plan than your descendants—there are also their spouses—especially if they become ex-spouses.”

Many family-owned businesses have had to scramble to maintain ownership, when owners or heirs were struck by COVID-19. Lacking a succession plan may have led to disastrous results, or at best, less than optimal corporate structures and large tax bills. This difficult lesson is a wake-up call, says the article “Succession Planning for the Family-Owned Business—Keepin’ it ‘All in the Family’” from Bloomberg Tax.

Another factor putting family-owned businesses at risk is divorce. Contemplating the best way to transfer ownership to the next generation requires a candid examination of family dynamics and acknowledgment of outsiders (i.e., in-laws) and the possibility of divorce.

Before documents can be created, a number of issues need to be discussed:

Transfer timing. When will the ownership of the business transfer to the next generation? There are some who use life-events as prompts: births, marriages and/or the death of the owners.

How will the transfer take place? Corporate structures and estate planning tools provide many options limited only by the tax liabilities and wishes of the family. Be wary, since each decision for the structure may have unintended consequences. Short and long-term strategic planning is needed.

To whom will the business be transferred? Who will receive an ownership interest and what will be the rights of ownership? Will there be different levels of ownership, and will those levels depend upon the level of activity in the business? Will percentages be used, or shares, or another form?

In drafting a succession plan, it is wise to assume that the future owners will either marry or divorce—perhaps multiple times. The succession plan should address these issues to prevent an ex-spouse from becoming a shareholder, whose interest in the business needs to be bought out.

The operating agreement/partnership agreement should require all future owners to enter into a prenuptial agreement before marriage specifically excluding their interest in the family business from being distributed, valued, or deemed marital property subject to distribution, if there is a divorce.

An owner may even exact a penalty for a subsequent owner who fails to enter into a prenup prior to a marriage. The same corporate document should specifically bar an owner’s spouse from receiving an ownership interest under any circumstance.

A prenup is intended to remove the future value of the owner’s interest from the marital asset pool. This typically requires the owner to buy-out the future spouse’s legal claim to future value. This could be a costly issue, since the value of the future ownership interest cannot be predicted at the time of the marriage.

Many different strategies can be used to develop a succession plan that ideally works alongside the business owner’s estate plan. These are used to ensure that the business remains in the family and the family interests are protected.

Reference: Bloomberg Tax (April 5,2021) “Succession Planning for the Family-Owned Business—Keepin’ it ‘All in the Family’”

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,”