King & Wood, P.A.

How Professionals Use Estate Planning

“Estate planning is essential for professionals looking to secure their financial legacy and protect their assets.”

Estate planning encompasses many aspects of an individual’s life, including asset management, wealth transfer and tax planning. With the help of an experienced estate planning attorney, a secure financial future and protection for loved ones can be accomplished. A recent article from mondaq, “Estate Planning for Professionals” provides useful details.

Estate planning includes protecting personal assets from creditors. The tools most often used include trusts, retirement accounts and insurance. Which type of trust is needed depends upon each person’s circumstances and should be tailored to meet your needs. Available trusts include gift trusts, revocable trusts, marital trusts, trusts to benefit children and special needs trusts, to name a few. Trusts also transfer business assets out of direct ownership while minimizing estate taxes.

Retirement accounts, including IRAs, are considered savings vehicles but serve other purposes. Certain retirement accounts include ERISA spendthrift protections, which also allow unlimited accumulation free from creditor claims while protecting someone from taking too much out of their account. ERISA, a federal law, does not protect IRAs, so any protection for the IRA is state-specific. In some states, assets in IRA and Roth IRAs are protected from creditors in case of bankruptcy.

Business owners are often advised to use LLCs and corporations to protect assets from creditors. However, the entity used depends upon the nature of the business and the owner’s circumstances. Keeping business and personal assets separate is a foundation of estate planning, which should also incorporate retirement and succession planning.

Succession planning should be done as soon as a business reaches a certain level of stability and success. If family members are part of the business, assigning key roles, clarifying responsibilities and planning for how ownership will transfer when the founding owners decide to retire or if they die while still operating the business needs to be in place. How the business will be transferred, which can occur in many different ways, must be clarified.

Divorce is an unpleasant fact of life for many families. Protecting assets must be weighed along with maintaining relationships, particularly where children are involved. A pre-nuptial agreement for the professional or business owner should be part of planning for marriage. Drafting the document when the relationship is good can clarify issues and hopefully preclude some acrimony if the marriage doesn’t go well.

An estate plan requires time to prepare, as documents including a last will and testament, power of attorney, healthcare power of attorney, advanced directives and trusts all require careful drafting. Any estate plan must be reviewed every few years to ensure its efficacy.

Reference: mondaq (Oct. 18, 2024) “Estate Planning for Professionals”

Estate Planning for Unmarried Senior Couples

“Creating an estate plan for an unmarried couple is already challenging. However, when the cohabitating couple is in their golden years, it’s especially tricky.”

An increasing number of couples at various stages of life are choosing to live together without marrying, making estate planning a bit more challenging. This is true whether the couple is relatively young and has children or if they are seniors, according to a recent article from Kiplinger, “Estate Planning and the Legal Quirks of Retiree Cohabitation.”

From one perspective, living together without being legally married provides an advantage: you have your own estate plan. You may distribute assets after death with no obligation to leave anything to a partner or their biological children. In many jurisdictions, the law requires spouses to leave a significant portion to their surviving spouse. This doesn’t apply if you’re cohabitating.

However, there are downsides. For example, a surviving unmarried partner doesn’t benefit from inheriting assets without estate taxes. A non-spouse transferring assets may find themselves generating sizable estate or income taxes. To avoid this, your estate planning attorney will discuss tax liability strategies.

Owning real property together can get complicated. Consider an unmarried couple buying a property solely in one person’s name, excluding the partner to sidestep any possible gift taxes. If the sole owner dies, the partner has no claim to the property. The solution could be planning for property rights in the estate plan, possibly leaving the property outright to the partner or in trust for the partner’s use throughout their lifetime. It still has to be planned for in advance of incapacity or, of course, death.

Regarding healthcare communication and directives, special care must be taken to ensure that the couple can be involved in each other’s care and decision-making. By law, decision-making might default to the married spouse or kin. Without a designated healthcare proxy, a cohabitating partner has no legal authority to obtain medical information, make medical decisions, or, in some cases, won’t even have the ability to have access to a hospitalized partner. A healthcare power of attorney is essential for unmarried couples.

For senior couples living together, blending families can be challenging. However, blending finances can be even more complex. Living together later in life can create many concerns if there are former spouses or children from a prior relationship. If a senior decides to marry, they are advised to have a prenuptial agreement so children from previous unions are not disinherited. If a potential spouse has big issues signing such a document, it should raise a red flag to their motivation to marry.

While living together without the legal protection of marriage is an individual decision and may be seen as a means of avoiding legalities, it needs to be examined from the perspective of estate planning to protect both parties and their families. Couples must prepare for the future, for better or worse, in sickness and health.

Reference: Kiplinger (Dec. 6, 2023) “Estate Planning and the Legal Quirks of Retiree Cohabitation”

Estate Planning for Second Marriages

“If you are getting remarried, you obviously want to celebrate. However, it is also important to focus on less exciting matters, like redoing your estate plan.”

Second marriage, goes the saying, is the triumph of hope over experience. It’s a happy event for everyone, but different from the first time around. You might have created an estate plan during your first marriage. Still, chances are your life is a lot more complicated this time, especially if you both have children from prior marriages and more assets than when you were first starting out as a young adult. This is why a recent article from The Bristol Press is aptly titled “Plan your estate before you remarry.”

Here are some pointers to protect you and your new spouse-to-be:

Take an inventory of all assets and liabilities. This includes assets and debts, life insurance policies, retirement plans, credit card debt and anything you own. It’s important to be open and honest about your debts and assets, so that both people know exactly what they are marrying. Once you are married, you may be liable for your partner’s debts. Your credit scores may be impacted as well.

Decide how you are going to handle finances. Once you know what your partner is bringing to the marriage, you’ll want to make clear, unemotional decisions about how you’ll address your wealth. Are you willing to combine all of your assets? Do you want to keep your investment accounts separate?

For example, if one person is selling a home to move into the home owned by the other person, what costs, if any, will they contribute to the cost of the house? If one person has significant debt, do you want to combine finances or make joint purchases? These are not always easy issues. However, they shouldn’t be ignored.

Decide what you want to happen when you die. You and your future spouse should meet with an experienced estate planning attorney to create a will, Power of Attorney, Health Care Proxy and other documents. This lets you map exactly where you want your assets to go when you die. If there are children from prior marriages, you’ll want to ensure they are not disinherited when you die. This can be addressed through a number of options, including creating a trust for your children, making them beneficiaries of life insurance policies, or giving children joint ownership of property.

Even if there are no children, there may be family heirlooms or items with sentimental value you want to keep in the family, perhaps passing to a cousin, nephew, or niece. Discuss this with your future spouse and ensure that it’s included in your will.

Meet with an estate planning attorney. You should take this step even if you don’t have many assets. If you have children, it’s even more important. You’ll want to update your will and any other estate planning documents. If you have significant assets, you may decide to have a prenuptial or postnuptial agreement. The estate planning attorney will also help you determine whether you need a trust to protect your children.

Reference: The Bristol Press (July 14, 2023) “Plan your estate before you remarry”

What Does a Last Will and Testament Do?

“A last will and testament is essential for every adult. It establishes one’s wishes for distributing their property, whether real or personal, after death.”

Your will is the foundation of an estate plan, used to instruct your executor on distributing property, naming a guardian for minor children, creating a legacy and ensuring that your beneficiaries receive what you want. The will can also serve to disinherit a family member, as explained in the recent article “Last will can both include and exclude heirs” from The Record-Courier.

The process of cutting someone out of a will is known as “disinheriting.” Hurt feelings and tension among family members are inevitable when someone is disinherited. However, if the goal is to avoid litigation between family members, an experienced estate planning attorney will be needed. It takes careful planning to avoid creating a will contest. Disinheriting adult children increases the likelihood of them contesting the validity of the will.

Laws concerning inheritance rights vary. In Nevada, for instance, unless there is a prenuptial agreement, you cannot completely disinherit a spouse. Even if your will attempts to disinherit a spouse, in some cases the law will actually override the instructions in the will or trust and award a portion of the estate, known as the elective share, to a surviving spouse. If this is a concern, check with your estate planning attorney.

Adult children can be disinherited. However, minor children are often protected against disinheritance.

Parents can be disinherited if they outlive the decedent, since they are not always legally entitled to a share of their children’s estate.

Extended relatives can also be disinherited. Some estate planning attorneys will conduct a search for missing heirs or beneficiaries while preparing an estate plan to be sure there are no unknown legal heirs who might make themselves known to a decedent’s surviving spouse or other heirs.

Estranged biological children can be disinherited. However, the last will and testament must be properly prepared.

The reasons for disinheritance very from estrangement to the decedent believing their family member is financially secure and doesn’t need the inheritance. It is not necessary for the last will and testament to explain the reason for the disinheritance. However, it is advised to use a disinheritance clause to ensure the heir or beneficiary is removed and will not inherit under the will.

To protect the integrity of the will, it is also advised to include a no-contest clause in the will. This is a provision expressing a directive to eliminate the share allocated to any beneficiary who takes action to contest the testator’s intents as expressed in the will.

The last will and testament is the person’s last communication with loved ones. There is no further opportunity for clarification once they have passed. This is why it’s so important to have a will and for the will to explicitly state the names of the beneficiaries and the names of any disinherited persons.

When you meet with your estate planning attorney to create or update your last will and testament, be prepared to tell them if there are any family members who you want to disinherit, so they can create a last will and testament and an estate plan designed to withstand challenges.

Reference: The Record-Courier (Dec. 17, 2022) “Last will can both include and exclude heirs”

How Same Sex Couples Can Protect Each Other

“For married same-sex couples, a marriage license may soon no longer be enough to protect their union.”

Since a Supreme Court justice recently called on the Court to reconsider the case that guaranteed marriage equality, now is the time for same-sex couples to prepare the legal documents used to protect their partnerships and their families.

Preparing for medical emergencies and ensuring your partner and children will be cared for if one partier dies requires an estate plan.

How to do this is explained in the article titled “Same-sex couples: These forms could help protect your rights if same-sex marriage ends” from Cincinnati.com.

Powers of Attorney. This is a document to allow another person to act on your behalf, if you are unable to do so. It needs to be signed with a notary and one or two witnesses, depending on what state you live in. The document can be durable, meaning it goes into effect upon being signed, or limited, if you want your representative to be able to manage some aspects of your personal affairs but not others.

Last will and testament. If you die without a will, your state’s laws of intestacy determine who your heirs are and what percentage of your assets are distributed to which person. This is based on kinship, so if same sex marriages lose legal protection, parents, siblings and children (not necessarily in that order) will receive your estate. Your partner may end up with nothing, unless you have a will.

Second-parent adoption. For stepparents and same-sex couples where one person has biological children, second-parent adoption is used to protect both parents’ rights to enjoy an equal legal relationship with their children, regardless of which parent is listed on the birth certificate. Couples who are concerned about remaining legal parents should contact an estate planning attorney to protect their family.

Prenuptial agreement. A prenup is an agreement signed before marriage to detail how assets, including money, investments and other property, are to be divided in case of divorce. A prenup could also include whether one partner will agree to support the other financially after a divorce and for how long support, sometimes referred to as maintenance, will continue.

Some, but not all, states permit post-nuptial agreements, which are legal documents similar to prenups, but signed after marriage.

Whether the laws regarding same—sex marriage remain the same or change, couples need to have an estate plan in place to protect each other. Estate plans are especially important when families include minor children, as a will is used to name a guardian, in case both parents die unexpectedly, and trusts can be created to provide the guardian with funds to support the child or children.

Reference: Cincinnati.com (Aug. 1, 2022) “Same-sex couples: These forms could help protect your rights if same-sex marriage ends”

Does Marriage have an Impact on a Will?

“Being married is significant both for a married person’s lifetime estate planning and subsequent administration of the estate at death. Important rights and responsibilities exist between married persons.”

It is very difficult to challenge a marriage once it has occurred, since the capacity needed to marry is relatively low. Even a person who is under conservatorship because they are severely incapacitated may marry, unless there is a court order stating otherwise, says the article “Estate Planning: On Being Married, estate planning and administration” from Lake Country News. This unfortunate fact allows scammers to woo and wed their victims.

What about individuals who think they are married when they are not? A “putative” spouse is someone who genuinely believed they were married, although the marriage is invalid, void, or voidable because of a legal defect. An example of a legal defect is bigamy, if the person is already married when they marry another person.

Once a couple is married, they owe each other a duty to treat each other fairly. In certain states, they are prohibited from taking unfair advantage of each other. Depending on the state of residence, property is also owned in different ways. In a community property state, such as California, marital earnings and anything acquired while married is presumed to be community property.

In a community property state, debts incurred before or during the marriage are also shared. In a number of states, marriage is sufficient reason for a creditor to come after the assets of a spouse, if they married someone with pre-marital debts.

There are exceptions. If a married person puts their earnings during marriage into a separate bank account their spouse is not able to access, then those deposited earnings are not available for debtor spouse’s debts incurred before the marriage took place.

If a married person dies without a will, also known as “intestate,” the surviving spouse is the next of kin.  In most cases, they will inherit the assets of the decedent. If the decedent had children from a prior marriage, they may end up with nothing.

These are all reasons why couples should have frank discussions about finances, including assets and debts, before marrying. Coming into the marriage with debt may not be a problem for some people, but they should be advised beforehand.

A pre-nuptial agreement can state the terms of the couple’s financial health as individuals and declare their intentions. An experienced estate planning attorney can create a pre-nuptial to align with the couple’s estate plan, so the estate plan and the pre-nuptial work together.

Marriage brings rights and responsibilities which impact life and death for a couple. Starting a marriage based on full disclosure and proper planning clears the way for a focus on togetherness, and not solely the business side of marriage.

Reference: Lake Country News (Feb. 12, 2022) “Estate Planning: On Being Married, estate planning and administration”

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’”

What Is Fair in a Second Marriage and Estate Planning?

“If you are planning to take another walk down the aisle, it is critical to take the time to review and revise your estate plan, especially if meaningful assets and debts are being brought into the marriage.”

The assets you and your second spouse bring into the marriage need to be carefully considered when revising your estate plan, says a recent article “Value of an Estate Plan Review With a Second Marriage” from Mondaq. If there are children from one or both partner’s prior marriages, those too need to be considered. If you plan on having children together, the estate plan needs to include this as well.

The best time to prepare this new estate plan would be before the wedding. This way, you can both go forward with the wedding and celebration with clear minds and hearts.

Start with a complete inventory of all assets and debts. List financial accounts, including investments, savings and checking accounts. Real estate and any personal assets, pensions and tax deferred retirement accounts should be included.

Review your wills, trusts, health care plans and directives, powers of attorney and any other estate planning documents at this time.

There may be assets that need to be retitled, and beneficiaries on all assets that permit designated beneficiaries should be updated at this time. Check to be sure a prior spouse is not the beneficiary of any life insurance or pensions. Any debts or liabilities that one partner brings to the marriage should be reviewed at this time. Comingling accounts and marriage will make both spouses responsible for each other’s debts, which should be discussed candidly.

Based on the inventory, one or the other partner may wish to have a prenuptial agreement to protect their individual financial interests. A prenuptial agreement may also be used to waive respective rights to each other’s property. These agreements are also used to serve as a means of retaining control of a business and defining premarital assets and debt.

When children are involved, decisions need to be made as to how assets are to be divided. Does one spouse want to leave their assets to their own children or to all of the children?

One way of addressing children in a second marriage is to create a separate marital trust to ensure that the new spouse receives the share of the assets you want them to have, while preserving your children’s inheritance. In the case of IRAs, it may be prudent to split them into separate IRAs among your spouse and children to protect the children’s inheritance.

When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. The only person who can inherit a Health Savings Account (HSA) without it becoming taxable, is your spouse. Remember to change this from your former spouse to the new spouse. Naming your children as the beneficiary would cause the account to be taxable on your death.

An estate planning attorney who has worked with second and subsequent marriages can help facilitate a discussion about structuring an estate plan. Working with a professional who knows how these situations are resolved can be a great help in getting the process started and keeping it moving forward.

Reference: Mondaq (March 2, 2021) “Value of an Estate Plan Review With a Second Marriage”

Planning Future for Nontraditional Families

“Some people are concerned that the new conservative 6-3 majority on the Supreme Court will roll back protections for non-traditional families. Regardless of the decisions at the Supreme Court, or the impact on the state family courts, there are many ways that non-traditional families can maintain control.”

Today’s non-traditional family are not just LGBTQ couples, but families undergoing gray divorces, blended families, stepchildren, multinational families and children born through assisted reproductive technologies, referred to as ART, in a recent article titled “How to Plan for LGBTQ, Blended Families, Cohabitation, Other Nontraditional Families” from Financial Advisor.

The key is having an estate plan prepared that is flexible so that last wills, trusts, and all documents reflect the non-traditional family very clearly and do not leave room for courts to make decisions. Here are a few new elements to consider:

Gendered pronouns and definitions. Ideally, your estate documents should use specific names of individuals, not pronouns. We live in a fluid society and using pronouns could lead to unnecessary complications.

Recognize ART and its implications. If there are children conceived by ART, they need to be explicitly included as children of the family. DNA testing can result in a child inheriting assets from a parent they never knew. It may be wise to exclude biological children, parents or siblings who do not have a relationship with the family.

Trust Protector/Trust Decanting. By including provisions that permit trusts to be decanted, that is, transferred from one trust to another, your estate planning attorney will create flexibility to allow a trust protector (a non-fiduciary appointment of a third party) to make changes. The selection of the trust protector is particularly important, as they could have a large impact on the overall plan.

Marriage, non-marital relationships, divorce, remarriage. An estate plan needs to prepare for future changes with precision and flexibility. Protecting the family, its privacy and dignity can be done by limiting the information in the last will, which becomes a public document. While we can’t know what the future holds, we can plan for change.

Prenuptial agreements. State laws vary on what is acceptable and procedurally necessary for a prenup to be enforceable. Typically, the agreement must be voluntary and include full disclosure of both parties’ financial situation. In some states, post-nuptials can be prepared, if the parties can’t agree on the document before they are legally wed.

Divorce creates special estate planning issues. Beneficiary designations need to be changed for life insurance, IRAs and other non-probate assets. Take affirmative steps to ensure that ex-spouses, or soon-to-be exes are removed as beneficiaries on all accounts, including pensions and insurance plans subject to ERISA.

Cohabitating couples. Marital gifts are tax free, but that is not the case for people living together. Estate planning and tax planning needs to be done, so the surviving partner is taken care of. This may include the creation of a cohabitation agreement, similar to a prenuptial agreement.

Planning for sickness and death. Explicitly stating wishes for end-of-life medical treatments, including feeding tubes, respirators, heart machines, etc., is step one in having an Advance Medical Directive created. Step two is deciding who is empowered to make those decisions. Someone who is unmarried but has a partner or a second spouse needs to be authorized. Note that when an individual is hospitalized, stepparents may attempt to deny access to spouses’ children, or children may block access to a stepparent. There should also be a Do Not Resuscitate (DNR) or Physicians Orders for Life-Sustaining Treatment (POLST) in place with the person’s wishes.

Non-traditional families of all types need to protect the family with estate planning and documentation. Issues about protecting children, making health care decisions for a critically ill partner and control of assets must be addressed in a way that respects the individuals and their families while working within the law.

Reference: Financial Advisor (Feb. 2, 2021) “How to Plan for LGBTQ, Blended Families, Cohabitation, Other Nontraditional Families”

Estate Planning for a Second Marriage and Blended Family

“Second (or third or fourth) marriages often require careful balancing between the needs of the surviving spouse and the needs of the children from a previous marriage.”

It takes a certain kind of courage to embark on second, third or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a second marriage” from the Times Herald-Record advises couples to take care of the business side of their lives before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals, and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other, or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended with remarriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Right of Election,” meaning they willingly give up any inheritance rights.
If the couple does not wish to have a prenup, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together, or naming each other as beneficiaries on various assets, including life insurance or investment accounts.

Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs, which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy, an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.

When applying for Medicaid, the assets of both spouses are at risk, regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property, but assets must go through probate, which can be costly, time-consuming and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy, and deflect family squabbles.

Creating a trust and placing the joint home and any assets, including cash and investments, inside the trust, is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries or is influenced by others—a new will could leave the children of the deceased spouse with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a second marriage”