How Do You Plan for the Death of a Spouse?

The COVID pandemic has become a painful lesson in how important it is to having estate plans in order, especially when a spouse becomes sick, incapacitated, or dies unexpectedly. With more than 500,000 Americans dead from the coronavirus, not every one of them had an estate plan and a financial plan in place, leaving loved ones to make sense of their estate while grieving. This recent article from Market Watch titled “How to get your affairs in order if your spouse is dying” offers five things to do before the worst occurs.

Start by gathering information. Make all of your accounts known and put together paperwork about each and every account. Look for documents that will become crucial, including trusts, a durable power of attorney, an advanced health care directive and a last will. Gather paperwork for life insurance policies, investment portfolios and retirement accounts. Create a list of contact information for your estate planning attorney, accountant, insurance agent, doctors and financial advisors and share it with the people who will be responsible for managing your life. In addition, call these people, so they have as much information as possible—this could make things easier for a surviving spouse. Consider making introductions, via phone or a video call, especially if you have been the key point person for these matters.

Create a hard copy binder for all of this information or a file, so your loved ones do not have to conduct a scavenger hunt.

If there is an estate plan in place, discuss it with your spouse and family members so everyone is clear about what is going to happen. If your estate plan has not been updated in several years, that needs to be done. There have been many big changes to tax law, and you may be missing important opportunities that will benefit those left behind.

If there is no estate plan, something is better than nothing. A trust can be done to transfer assets, as long as the trust is funded properly and promptly.

Confirm beneficiary designations. Check everything for accuracy. If ex-spouses, girlfriends, or boyfriends are named on accounts that have not been reviewed for decades, there will be a problem for the family. Problems also arise when no one is listed as a beneficiary. Beneficiary designations are used in many different accounts, including retirement accounts, life insurance policies, annuities, stock options, restricted stock and deferred compensation plans.

Many Americans die without a trust or will, known as dying “intestate.” With no will, the court must rely on the state’s estate laws, which does not always result in the people you wanted receiving your property. Any immediate family or next of kin may become heirs, even if they were people you with whom you were not close or from whom you may even have been estranged. Having no will can lead to estate battles or having strangers claim part of your estate. Even with a will, assets may have to go through probate, a potentially long legal process.

If there are minor children and no will to declare who their guardian should be, the court will decide that also. If you have minor children, you must have a will to protect them and a plan for their financial support.

Create a master list of digital assets. These assets range from photographs to financial accounts, utility bills and phone bills to URLs for websites. What would happen to your social media accounts, if you died and no one could access them? Some platforms provide for a legacy contact, but many do not. Prepare what information you can to avoid the loss of digital assets that have financial and sentimental value.

Gathering these materials and having these conversations is difficult, but they are a necessity if a family member receives a serious diagnosis. If there is no estate plan in place, have a conversation with an estate planning attorney who can advise what can be done, even in a limited amount of time.

Reference: Market Watch (Jan. 22, 2021) “How to get your affairs in order if your spouse is dying”

 

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Can Unmarried Couples have an Estate Plan?

For unmarried couples, having an estate plan might be even more important than for married couples, especially if there are children in the family. The unmarried couple does not enjoy all of the legal protection afforded by marriage, but many of these protections can be had through a well-prepared estate plan.

A recent article “Planning for unmarried couples” from nwi.com explains that in states that do not recognize common law marriages, like Indiana, the state will not recognize the couple as being married. However, even if you learn that your state does recognize a common law marriage, you still want to have an estate plan.

A will is the starting point of an estate plan, and for an unmarried couple, having it professionally prepared by an experienced estate planning attorney is very important. An agreement between two people as to how they want their assets distributed after death sounds simple, but there are many laws. Each state has its own laws, and if the document is not prepared correctly, it could very easily be invalid. That would make the couple’s agreement useless.

There are also things that need to be prepared, so an unmarried couple can take care of each other while they are living, which they cannot legally do without being married.

A cohabitating couple has no right to direct medical care for each other, including speaking with the healthcare provider or even seeing their partner as a visitor in a healthcare facility. If a decision needs to be made by one partner because the other partner is incapacitated, their partner will not have the legal right to make any medical decisions or even speak with a healthcare provider.

If the couple owns vehicles separately, the vehicles have their own titles (i.e., the legal document establishing ownership). If they want to add their partner’s name to the vehicle, the title needs to be reissued by the state to reflect that change.

If the couple owns a home together, they need to confirm how the home is titled. If they are joint tenants with rights of survivorship or tenants in common, that might be appropriate for their circumstances. However, if one person bought the home before they lived together or was solely responsible for paying the mortgage and for upkeep, they will need to make sure the title and their will establishes ownership and what the owner wants to happen with they die.

If the wish is for the surviving partner to remain in the home, that needs to be properly and legally documented. An estate planning attorney will help the couple create a plan that addresses this large asset and reflect the couple’s wishes for the future.

Unmarried cohabitating adults need to protect each other while they are living and after they pass. A local estate planning attorney will be able to help accomplish this. My office is fully open to help you discuss these issues. We can schedule a meeting in person or virtually through Zoom.

Reference: nwi.com (Jan. 24, 2021) “Planning for unmarried couples”

 

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Does a Trust Have to Be Funded to Be Valid?

Thinking you have divided assets equally between children by creating a trust that names all as equal heirs, while placing only one child’s name on other assets is not an equally divided estate plan. Instead, as described in the article “Estate Planning: Fund the trust” from nwi.com, this arrangement is likely to lead to an estate battle.

One father did just that. He set up a trust with explicit instructions to divide everything equally among his heirs. However, only one brother was made a joint owner on his savings and checking accounts and the title of the family home.

Upon his death, ownership of the savings and checking accounts and the home would go directly to the brother. Assets in the trust, if there are any, will be divided equally between the children. That’s probably not what the father had in mind, but legally the other siblings will have no right to the non-trust assets.

This is an example of why creating a trust is only one part of an estate plan. If it is not funded, that is if assets are not retitled, it will not work.

Many estate plans include what is called a “pour-over will” usually executed just after the trust is executed. It is a safety net that “catches” any assets not funded into the trust and transfers them into it. However, this transfer requires probate, and since probate avoidance is a goal of having a trust, it is not the best solution.

The situation as described above is confusing. Why would one brother be a joint owner of assets, if the father means for all of the children to share equally in the inheritance? When the father passes, the brother will own the assets. If the matter went to court, the court would very likely decide that the father’s intention was for the brother to inherit them. Whatever language is in the trust will be immaterial.

If the father’s intention is for the siblings to share the estate equally, the changes need to be made while he is living. The brother’s name needs to come off the accounts and the title to the home, and they all need to be re-titled in the name of the trust. The brother will need to sign off on removing his name. If he does not wish to do so, it’s going to be a legal challenge.

The family needs to address the situation as soon as possible with an experienced estate planning attorney. Even if the brother won’t sign off on changing the names of the assets, as long as the father is living there are options. Once he has passed, the family’s options will be limited. Estate battles can consume a fair amount of the estate’s value and destroy the family’s relationships.

Reference: nwi.com (Jan. 17, 2021) “Estate Planning: Fund the trust”

 

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