Estate Planning Bits

Estate Planning for Blended Families: Considerations for cohabitating or married couples with kids from other relationships

The modern family of today is often a mix of spouses, exes, kids, and steps who somehow find a way to make it all work. Estate planning for such an intricate blended family may be a little tricky, and there are lots of factors to consider. 

While traditional estate planning documents are critical, it is also important to consider a prenuptial or a cohabitation agreement. Either one of these agreements should spell out, in as much detail as possible, what will occur if the relationship dissolves, regardless of whether or not the couple is married. 

One of the major issues that this agreement should address is housing. When a couple purchases or rents a home together, if the relationship falls apart, and both parties are liable on a mortgage, what will happen?

Additional life insurance may be necessary if one of the parties is under an order of the court from a prior divorce decree wherein a percentage of assets is required to be maintained for the benefit of children from the prior marriage.

It is also important to consider each party’s health proxy and durable power of attorney. Who will be in charge of making decisions in the unfortunate event that one individual becomes incapacitated?

A will and possibly a trust should also be considered, and provisions within these documents should fairly closely mirror the prenuptial agreement to conform with all of the requirements set forth in that agreement, which may be construed to be a legal contract.

In addition, if there are any requirements under an order of the court from a prior divorce decree, those provisions should also be reviewed and included within one’s will.

When assets of relatively equal value are owned, some couples choose to retain their own assets in the event of a divorce, however, in the event of a death, some additional assets would be left to the survivor. Other options may include a possible phasing in of assets.

Health insurance should also be considered prior to marriage. Both parties may be receiving health insurance from a former spouse. The previous divorce decree, any modifications, and separation agreement should be reviewed carefully ensure that all benefits are maintained or solutions may be implemented.

The issue of life insurance and qualified plans such as 401(k)s, IRAs, 403(b)s, etc. should also be reviewed. It is very important to understand that such assets pass by beneficiary, not by will. Therefore, whoever is named as the beneficiary of these assets will receive them without the need of having those assets pass through probate.

Likewise, if assets are intended to pass to a trust or to individuals listed in a will, it is important to obtain change of beneficiary forms and have them signed and forwarded to the plan administrators at insurance companies when the documents are signed.

The bottom line is that there are many important considerations and decisions to make before remarrying or moving in with another person.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft 

2013 numbers that might matter to you

Every year, many important numbers are adjusted for cost of living increases or other adjustments. 2013 is no exception, and the following is a list of some of the important numbers to be considered: 

Estate and Gift: 

Annual exclusion gifts - $14,000

Lifetime gift credit - $5,250,000

Estate tax credit - $5,250,000 

Medicaid: 

Maximum community resource allowance - $115,920

Minimum community spouse resource allowance - $25,000

Maximum amount Medicaid recipient may own - $2,000

Minimum monthly maintenance allowance - $2,898 (until July, 2013) 

Medicare Part A: 

Hospital deductible (days 1 – 60) - $1,184

Hospital co-insurance (days 61 – 90) - $296/day

Hospital co-insurance (days 91 – 150) - $592/day 

Medicare Part B: 

Deductible - $147/year

Standard premium (if individual’s income is less than $85,000) - $104.90/month 

Income taxes: 

Maximum wages for Social Security tax purposes - $113,700 

Capital gains tax: 

Maximum rate – 20%

Phase-out of itemized deductions: 

Cut by 2% for each $2,500 of adjusted gross income over the same thresholds for phase out of standard deductions.

Phase-out of standard deductions: 

$250,000 for single taxpayers

$300,000 for married taxpayers 

 

The above numbers are the standard numbers for 2013, but many of these may be adjusted for both tax and Medicaid purposes with accounting and/or legal assistance. There are exceptions to both rules and figures, and you should not merely consider that the aforementioned numbers are set in stone without proper planning.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft 

 

Beware contesting wills and trusts with a no contest clause!

Every once in awhile, there is a case that is worthy of writing about to help our clients understand their rights and obligations.

In some legal documents, lawyers include language known as a no contest clause or an in terrorem clause. This helps to prevent individuals from contesting wills and trusts, and in many states, these are held to be valid so that if a person does contest, they forfeit and lose their rights under the trust or will. In some states, however, these clauses are not valid, and in some instances, they are valid only if the objector to the will or trust is successful.

A recent case in New Hampshire involves a significant estate, (over $100,000,000,) where the decedent left funds in trust. The trustees had the obligation to invest the funds and make distributions, but at one point, some of the beneficiaries objected to many of the decisions of the trustees, but they ultimately resolved the matter by a mutually agreeable settlement which was filed with the court.

A few months later, one of the disgruntled beneficiaries, who still was not happy, proceeded to bring an action against the trust, attempting to remove the trustees, sue for breach of fiduciary duty, and made other allegations and complaints in her capacity as a beneficiary.

This trust contained a no contest clause, and one of the affirmative defenses and arguments of the defendant trustees was basically that the plaintiff beneficiary would forfeit her share if she contested. After many weeks of hearings with many witnesses, including many nationally recognized legal scholars who testified, the court, in a 50+ page decision, decided that the plaintiff did not have a case and enforced the no contest clause.

The plaintiff in this case was not only prohibited from receiving any further distributions based on the in terrorem clause affirmation by the court, but she was also ordered to reimburse the trust for all of the distributions made to her from the date of the filing of her action, as well as pay all of her own legal fees and costs, which were apparently in the hundreds of thousands of dollars.

It is important, therefore, to be sure that before contesting any case, you read all of the language of all documents, including any amendments or codicils, to determine whether there is the no contest clause. If so, you must make a difficult decision whether to proceed and gamble away your rights in your attempt to void the document, because if you are not successful, the net effects will likely be financially devastating.

Not only did the above plaintiff lose the case, but she had to repay funds received as well as pay all her own costs and expenses. She is now removed as a beneficiary from this trust, thus providing the other beneficiaries with significantly more money.

As unhappy as she may have been with the prior trustees, and for whatever other reasons she brought the action, she certainly would have been better off merely maintaining her status quo as an unhappy beneficiary.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft