Klitzman Law Group, PLLC

Is Extending Required Minimum Distributions a Good Thing?

“The first SECURE Act extended the beginning date for taking required minimum distributions from the year after the account owner reaches age 70½ until they reach age 72. Just three years later, ‘SECURE Act 2.0’ has extended this age to 73, and offers a further provision for extending it again, to age 75, beginning in 2033.”

The question is, are these extensions a good thing, or a trap for people who aren’t up on the latest rules? A key concept is the difference in how couples and singles are taxed. The income level at which singles reach tax bracket thresholds is half that of married people filing jointly, explains a recent article titled “Are Extended RMDs A Gold Mine Or Tax Trap?” from Financial Advisor.

For example, a retired couple reaches 70½ this year. They’ll have an RMD of $89,450 from their combined $2 million plus in IRAs. They also receive $27,700 in interest and dividend income during the year—exactly equal to the standard deduction for a married couple filing jointly. The federal income tax liability would be $10,294 (not including taxes on Social Security benefits).

Let’s say they opt not to withdraw the $89,450 during 2023. Instead, they wait and one of the spouses dies. The surviving spouse then withdraws $89,450 as a widow. The survivor’s federal income tax liability on the same amount becomes $18,192, or almost 77% higher than if both spouses were still living. The “single filer” penalty is an issue.

What’s more, the children of our example are likely to face a higher income tax rate on what’s left in their parents’ IRA when both pass away. They are likely to be in their peak earnings years at that point and have only ten years at most to take the entire payout after their parents die.

Finally, if the married couple takes IRA withdrawals earlier rather than later, they’ll see a step-up in basis for all the after-tax funds they’ve allowed to appreciate for the rest of their lives. This eliminates all income tax on the appreciation. This is an important income tax benefit you don’t get from IRA receipts after the death of the account owner. Perhaps this is what Congress had in mind when it extended the starting date for RMDs not once, but three times.

It could be argued that singles, including surviving spouses, will see IRAs grow more if they put off distribution even longer. However, eventually bigger amounts may push individuals or families into a higher income tax bracket later on, and the undistributed IRA would not get a step-up in income tax basis on the death of the original owners. The undistributed IRA amount also can’t be rolled into a Roth IRA.

Tax brackets strategies can be improved if the couple takes withdrawals before they turn 70 ½, as long as they are retired and not in a high-income tax bracket. By taking increasing RMDs later in life, it’s possible to increase the federal income tax bracket, and risk triggering the single-filer penalty on the widowed spouse.

Estate planning for the SECURE Act means if you haven’t had your estate plan reviewed in the last two or three years, it’s time to make an appointment with an estate planning attorney. These changes in the law may create new opportunities, or your existing estate plan may not be properly structured to address the changes brought about by Congress.

Reference: Financial Advisor (March 1, 2023) “Are Extended RMDs A Gold Mine Or Tax Trap?”

Estate Planning Checklist

“Estate plans are made up of many parts, including wills and trusts, as well as any additional documents or information that will help beneficiaries carry out the requests of the benefactor.”

Think of estate planning as life planning. Having an estate plan means you and your family have expressed wishes for the future, while you are living if you become incapacitated and when you pass away. According to a recent article, “Estate Planning: 7 Things To Make Sure You Do” from aol.com, taking these steps while you’re healthy and of sound mind is the best time to get your estate plan done.

An estate plan includes a will and other documents. Dying without an estate plan can drag loved ones into long and costly probate to determine how assets should be distributed. With an estate plan, you give yourself and your loved ones peace of mind.

The estate plan includes:

• A last will and testament
• Power of attorney in case of incapacity
• Medical directives
• Naming a guardian for minor children
• Business succession plans
• Trusts

Create an inventory of assets, including financial and bank accounts, insurance policies and contact information for any professionals, including your estate planning attorney, accountant, financial advisor, etc. You should also make copies of estate planning documents, mortgage, deed to the house, titles to cars and any other property. Keep these documents in a secure place, like a fire and waterproof home safe, and make sure family members know where they can access this information in an emergency.

Don’t neglect your social media and digital assets. What do you want to happen to these assets when you die? The terms of service vary from platform to platform, so you’ll need to create an inventory of these accounts and determine if they have a “legacy” option where someone else can gain access to the accounts to gather data, download photos and music, or gain control of assets.

Name a Power of Attorney to make financial and legal decisions, if you can’t do so for yourself. You have to name your spouse if you want them to have this power; it is not automatic. Without it, your spouse will not be able to access accounts or property which may be in your name only. To do so, your spouse or a family member will have to petition the court to assign a guardian or conservator to manage finances.

Appoint a Durable Power of Attorney for Healthcare to name someone to make medical decisions regarding healthcare and end-of-life care if you are unable to do so yourself. Depending on your state, there may be limits to who can be designed to serve in this role. An estate planning attorney will be able to help you with choosing the right person.

Create wills and trusts, a living will and a living trust. A living will outlines the medical care you would want if you are unable to make your own healthcare decisions, such as what forms of life support you would or would not want to receive.

A living trust allows you to transfer property to heirs without needing to go through probate. If you have a will, any property in your name only will go through probate. However, if assets are transferred to a living trust, they will go directly to the family.

Write funeral instructions in a separate document, but not in your will, as your will may not be read until after death. Specify what kind of memorial service you want and whether or not you want to be buried or cremated, or if you’ve made any arrangements already, like buying a grave site.

Creating a comprehensive plan is a bit of an undertaking. However, it is vital to protect yourself and your loved ones. It’s also not something you do once and never look at again. As life circumstances and laws change, it’s important to reassess your plan every three to five years to ensure that it still achieves your goals.

Reference: aol.com (Feb. 20, 2023) “Estate Planning: 7 Things To Make Sure You Do”

Three Ways to Making Trusts Millennial Friendly

“If your estate plan benefits Gen Y (also known as Millennials) it’s important to design a trust that supports what makes them thrive.”

If your named beneficiaries are Millennials—born between 1981-1996—you may want to consider three essential points about your trusts, as explained in the recent article “Trusts For Your Millennial Beneficiaries” from The Street. They’re different from their parents and grandparents, and disregarding these differences is a missed opportunity.

This generation’s distinguishing characteristics and traits include:

• Valuing relations with superiors with a passion for learning and growth.
• Desire to live a life with meaning and make a positive impact on the world and causes.
• Creative and free thinking, looking for outside-the-box solutions and opportunities.

If your estate plan benefits Gen Y, some trust features recommended for Millennials may not be optimal for them. They’re different than their older Millennial counterparts.

Have your beneficiary serve as a co-trustee of their trust alongside an experienced advisor. Millennials appreciate the opportunity to ask for advice from a trusted advisor, secure positive reinforcement and get constructive feedback. Many heirs set to come into money are likely to work with an advisor once they inherit. For them, a co-trustee arrangement could be perfect. Consider naming a family member or friend with a background in finance as their co-trustee or naming a corporate trustee.

Consider giving your beneficiary a limited testamentary power of appointment to support their favorite charity. Millennials want to make a positive impact on the world, and there’s a trust feature you can build into a trust to support this goal: a limited testamentary power of appointment. In broad strokes, this gives the trust beneficiary the power to redirect where assets go upon their death. If the scope of power permits, they could redirect assets to charitable organizations of their choice.

Most people design trusts to last for the beneficiary’s lifetime and then structure the trust so assets remaining at their death will pass in trust to their children in equal shares. Trusts can also be created to change the distribution percentages between recipients. For instance, instead of a 50-50 split, the trust can redirect shares of 70-30 to better accomplish their personal objectives. You can also provide for new beneficiaries, like charities, if they weren’t part of the original trust.

Powers of appointment can be complicated and making them overly broad can have serious and adverse tax consequences. Therefore, speak with your estate planning attorney to make sure the scope of power is clear and properly designed.

Broadly define the standards for which distributions can be made to your beneficiary. Millennials think differently, so the commonly used trust distribution standards of health, education, maintenance and support (“HEMS”) may stop them from being able to tap into trust funds for philanthropic or entrepreneurial efforts. The HEMS standard only allows for distributions generally for purposes to align with the beneficiary’s current standard of living. If you want beneficiaries to be able to do more, they need to be given the ability to do so.

Another way to accomplish this is to allow a disinterested trustee (someone who is not a beneficiary) an expansive distribution authority. Having the ability to make a distribution of trust funds to your beneficiary for any purpose can be a little unsettling. However, naming a disinterested trustee you trust will ensure that funds are distributed responsibly.

Leaving assets in trust for beneficiaries can be part of an effective estate plan supporting planning goals and your loved one’s future. However, if the trust’s structure doesn’t meet their unique needs and talents, then their potential may be dimmed.

Reference: The Street (Feb. 24, 2023) “Trusts For Your Millennial Beneficiaries”

When Should You Start Taking Social Security Benefits?

“Should you retire now and begin collecting your benefits, or hold off for a few more years?”

You don’t need to wait until age 67 to start collecting Social Security benefits, even though the Full Retirement Age is currently 67. You could, if needed, start collecting benefits as early as age 62, although there are some downsides to such an early start, according to a recent article from CNET, “When Is the Best Time to Begin Collecting Social Security Benefits?”

When you start collecting Social Security could impact your finances for the rest of your life. While the big Cost of Living Adjustment (COLA) in 2023 added more cash to every benefit, you might want to know if this is a reason to start collecting benefits this year.

There are pros and cons, and the best solution requires an honest and thorough look at your own financial situation, including other sources of retirement income.

First, how are benefits calculated? The Social Security Administration uses your average monthly earnings from up to 35 years to calculate your “primary insurance amount” or the benefit you’d receive at FRA (Full Retirement Age). This includes income up to the “taxable maximum” amount, which is $160,200 for 2023.

After determining the number of years, the years with the highest earnings are chosen, taking inflation into account. The sum of those earnings, divided by the total number of months worked during those years leads to a final resulting average, rounded down to the next lower dollar amount.

Your earnings are then indexed, so future benefits are reflected in the current standard of living to help offset inflation. This “average indexed monthly earnings” number is then used to calculate your monthly benefit.

If you are a spouse or an ex-spouse of someone who has contributed to Social Security through taxes, you might be able to claim part of their benefits, either receiving the spousal share of their benefit or a payout based on your own work history, whichever amount is greater.

The earliest you can start taking benefits is age 62, although you’ll receive a smaller amount than if you wait until FRA. Every situation is different, so there’s no single “best age” for everyone. The questions to ask are these: when do you want to retire, and when can you afford to retire?

When you can afford to retire depends on more than the savings you have accumulated. It also depends upon the lifestyle you want and where you’ll live during retirement. You’ll also want to consider your health and longevity. If you are living with a chronic illness, you may choose to retire earlier and collect earlier. It’s a very individual decision.

If Social Security is the sole or majority income source to pay expenses during retirement, waiting to retire and claiming benefits at a later date is likely your best choice. You’ll receive more money each month and have more time to save for retirement.

If you choose to retire early, benefits will be reduced for each month before FRA. If you were, for example, born in 1960 or later and retire at age 62 with a retirement benefit of $1,000, your monthly payment will be reduced to $700—a 30% reduction.

On the other hand, that’s $700 you would otherwise not receive if you weren’t taking Social Security benefits. Therefore, you might benefit from collecting smaller payments over a longer period of time.

Retirees need to monitor their spending and withdrawal rates, so they don’t outlive assets. Reducing spending and forgoing costly expenses like travel, especially when markets are down or inflation is high, can help extend retirement savings.

Reference: CNET (Feb. 25, 2023) “When Is the Best Time to Begin Collecting Social Security Benefits?”

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary?

“Estate planning is crucial to leaving your beneficiaries with your possessions as you intend.”

If you aren’t thorough with your estate planning, you could create conflict, even with the best of intentions, says a recent article from yahoo! Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Your life insurance beneficiary designation supersedes your will, so you’ll need to have your life insurance policy and your will aligned to save heirs from stress, confusion, and possible litigation. You can use both life insurance beneficiaries and wills to bequeath assets to others when you die. However, they can work together or against each other, so meticulous planning is key.

Here’s how they work, and which takes precedence.

A life insurance beneficiary is the person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts.

A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the beneficiaries who you wish to receive your assets.

If you have minor children, a will is also used to assign legal guardians, the people who you wish to raise your children in your absence.

Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.

Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the will don’t influence or have any legal power over what’s in the will.

Your beneficiary designation in the policy is the sole determining factor, with one exception. If the beneficiary passes away before you and there is no contingent beneficiary named, the life insurance proceeds will go to your estate. Your executor will then disburse assets from the estate according to the beneficiaries named in your will.

Do you need a will? While a will has no influence over your life insurance, it’s a critical part of your estate plan. Probate court uses the will to determine who receives assets and name an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan, instead of relying on separate beneficiary designations.

Reference: yahoo! entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Probate: What Is it? How Does it Work?

“In certain instances, particularly when there is no Will, the system ensures that all accounts and property are distributed in accordance with state law.”

Many times, the word probate carries a negative connotation and it’s often positioned as something to avoid at all costs. According to a recent article “The Legal Corner: Pros and Cons of Probate” from The Huntsville Item, it’s important to understand the role probate plays in the estate planning and administration process. A comprehensive estate plan can minimize the probate process, and in some instances, it is a convincing reason to have a professionally created estate plan.

In cases where there is no will, the probate system ensures that all accounts and property are distributed in accordance with state law. There are potential benefits to having an estate go through probate in the administration of a decedent estate, including:

• Probate provides a reliable procedure for the distribution of the deceased’s property in the absence of a will.
• If a will exists, probate validates and enforces the wishes of the decedent.
• Probate ensures that taxes and valid debts are paid, so beneficiaries are not left with an uncertain feeling regarding the decedent’s affairs.
• If there were debts or unpaid bills, probate provides a means of limiting the amount of time creditors have to file claims, which may result in debt discharge, reduction, or other advantageous settlements.
• It allows for third-party oversight by a court, potentially reducing family conflicts and in certain instances, encouraging family members to act properly.

There are also reasons to avoid probate. An experienced estate planning attorney can create an estate plan where wealth and property pass directly to beneficiaries, avoiding or minimizing all or part of the estate going through probate. These include:

• Privacy is a big benefit of avoiding probate. Probate is a matter of public record, so certain documents, including personal and financial information, are accessible to the public. This is why wills should never have specific account names and numbers included.
• Probate means that your estranged family member will be able to find out how the estate was distributed and read the will, even if you didn’t wish this to happen.
• Probate can be costly. Probate requires court fees, attorney fees and executor fees, which are then deducted from the value of assets intended for loved ones.
• Probate can be time-consuming, depending on where you live. In some jurisdictions, probate courts run smoothly. However, this is not aways the case. If the family is depending on receiving assets quickly, for example, if funds are needed in order to maintain the decedent’s house so it can be sold, probate will require them to find other resources.

An estate planning attorney will be able to review the estate and determine which assets can be transferred to heirs through other means to avoid having the entire estate go through probate. They will also be familiar with the courts in your local jurisdiction and know how long it will take, if the estate needs to go through probate.

Reference: The Huntsville Item (Feb. 12, 2023) “The Legal Corner: Pros and Cons of Probate”

Do Family Secrets Hurt Estate Planning?

“With about $70 trillion in wealth transfers expected over the next 22 years, the conversations clients have with advisors about their inheritance plans show a shocking lack of timeliness and transparency, according to a survey by Cerulli Associates.”

A study by the financial services research firm reveals just how big a problem family secrets can be, as reported in Financial Advisor’s recent article “Family Wealth Transfers Undermined by Secrecy.” Most asset holders plan to share their wishes and intentions with family members before they die. However, the research reveals only about half actually do so.

The survey looked at two demographics: affluent investors with more than $250,000 in investable assets and near affluent, investors under age 45 with earnings more than $125,000. Responses were weighted to reflect the distribution of households within these segments, which are wealthier and older than the average U.S. population.

Estate planning attorneys understand the complexity of multi-generational families and are experienced with nuances in family dynamics and the hesitancy of families to share their financial details. After a lifetime of not discussing wealth, it can be difficult to know where to begin.

When asked how well informed heirs are about their parent’s desires and plans for bequests, only 26% said their heirs were very well informed. The greater the wealth, the more likely conversations had taken place. About a third of respondents with more than $1 million in investable assets said heirs knew of their plans.

Those with less than $250,000 to pass on were not sure if heirs knew their wishes or, worse, admitted their heirs had absolutely no idea.

Although skipping generations offers tax advantages, most heirs receive inheritances directly from a parent upon their death. Having an estate plan in order, including wills and trusts agreements, ensures an orderly transfer of wealth.

A key component of successful wealth transfer is communication. However, this survey found a full 25% of respondents never intend to share information about their assets while they are living. This prevents comprehensive planning from taking place, since a number of aspects of wealth planning require active planning and other people to be involved during the parent’s lifetime.

Planning for incapacity requires the involvement of siblings, spouses, and heirs. Advanced directives, power of attorney, health care power of attorney and related documents need to be shared with family members, so they can act on the parent’s behalf. Lacking these documents creates emotional and financial burdens on loved ones.

Because healthcare costs later in life can quickly erode assets, talk with your estate planning attorney about health care and Medicaid planning for long term care to help manage expenses and preserve as much wealth as possible.

Reference: Financial Advisor (Feb. 22, 2023) “Family Wealth Transfers Undermined by Secrecy”

Beneficiary Battle over Presley Estate Reveals Possible Problems in Estate Planning

“A badly in debt woman dies leaving the proceeds of substantial insurance policies to her children only to have her trust contested by relatives who claim an amendment naming the children as beneficiaries is invalid with no witnesses, misspelled names, suspicious signatures and was never given to previous trustees for review as required by agreement. A long, expensive, and protracted legal battle likely is brewing.”

This is the situation facing the estate of Lisa Marie Presley, whose estate is being challenged by her mother, Priscilla Presley, as described in a recent article, “Presley beneficiary battle sets example of poor estate planning practices” from Insurance NewsNet. These situations are not uncommon, especially when there’s a lot of money involved. They serve as a teachable moment of things to avoid and things to absolutely insist upon in estate planning.

Lisa Marie’s estate is being challenged because of an amendment to the trust, which surfaced after she died. The amendment cut out two trustees and named Lisa Marie’s children as executors and trustees.

At stake is as much as $35 million from three life insurance policies, with at least $4 million needed to settle Lisa Marie’s debts, including $2.5 million owed to the IRS.

When this type of wealth is involved, it makes sense to have professional trustees hired, rather than appointing family members who may not have the skills needed to navigate family dynamics or manage significant assets.

A request to change a will by codicil or a trust by amendment happens fairly often. However, some estate planning attorneys reject their use and insist clients sign a new will or restate a trust to make sure their interests are protected. In the case of Lisa Marie, the amendment might be the result of someone trying to make changes without benefit of an estate planning attorney to make the change correctly.

The origins of the estate issues here may go back to Elvis’ estate plan. His estate was worth $5 million at the time of this death, $20 million if adjusted for inflation. His father was appointed as the executor and a trustee of the estate. His grandmother, father and Lisa Marie were beneficiaries of the trust. Lisa Marie was just nine when her famous father died, and her inheritance was held until she turned 25.

When his father died, Priscilla was named as one of three trustees. When his grandmother died, Lisa Marie was the only surviving beneficiary. She inherited the entire amount on her 25^th birthday—worth about $100 million largely at the time because of Priscilla’s skilled management.

Terminating such a large trust and handing $100 million to a 25 year old is seen by many estate planning attorneys as a big mistake. Distribution at an older age or over the course of the beneficiary’s lifetime could have been a smarter move. Lisa Marie reportedly blew through $100 million as an adult and was millions of dollars in debt, despite the estate having plenty of cash because of two large life insurance policies.

In 1993, Lisa Marie established a trust naming her mother and former business manager as trustees. The amendment in question seems to have been written in 2016, removing Priscilla and business manager Siegel as trustees, appointing Lisa Marie’s daughter and son as trustees, and naming her son and her fourteen year old twin sons as beneficiaries.

Priscilla’s attorneys say they had no prior knowledge of the change. Certain changes in estate plans require written notification of people with interest in the estate, which did not occur. They are also challenging the amendment’s authenticity, saying it was neither witnessed nor notarized. Priscilla’s name is misspelled and Lisa Marie’s signature is not consistent with other signatures of hers.

The estate is being contested, with a preliminary hearing on the matter scheduled for April 13.

Any changes to an estate plan, particularly those involving changes to the will, trusts or beneficiaries, should be done with the help of an experienced estate planning attorney. When large changes are made, or large assets are involved, a simple codicil or amendment could lead to complicated problems.

Reference: Insurance NewsNet (Feb. 17, 2023) “Presley beneficiary battle sets example of poor estate planning practices”

What Documents are in an Estate Plan?

“There are frequently asked questions that people have about revocable living trusts, wills, supported decision making agreements (new), powers of attorney and advance health care directives.”

Understanding how estate planning documents work is central to creating an estate plan for each individual’s unique situation. An estate planning attorney needs to know the details of your life, not because they’re nosy. It is because this is how they can create a plan tailored to protect you during your lifetime, plan for long-term care and distribute assets upon your death. A recent article, “Understanding estate planning documents” from Lake Country Record-Bee, explains in broad strokes what each estate plan needs to include.

The will nominates an executor to administer the decedent’s estate, including the distribution of specific gifts and other assets. Depending on your state of residence, the will must be witnessed by one or two people who have no interest in the outcome of your will. At death, the distribution of assets only applies to those in the estate and not to those who receive property transferred under a trust, through a designation of death beneficiary form or a joint tenancy title.

A trust controls and manages assets placed in the trust during life and after death. Assets held in a living trust are used to avoid conservatorships, should become incapacitated during life. Assets in trusts do not go through probate.

Assets transferred into a living trust must belong to the person to establishes the trust, known as the settlor. A married couple may establish a joint trust to receive community property, if they live in a community property state. Each spouse may choose to transfer his or her own separate property assets into a joint trust, or keep their separate property assets in separate trusts.

Trust assets are titled for ownership and control to the trustee. The trustee is a fiduciary, meaning they are the legal representative of the trust and administer the provisions of the trust as directed in the trust documents.

You should always have a successor trustee for a trust, who takes office when the last initial trustee resigns, becomes incapacitated, or dies. How and when the transfer to the successor trustee takes place is included in the trust documents. Some trusts include a specific method to fill a trustee vacancy, if no nominated successor trustee accepts the role.

Living trusts can be changed by the settlor. The incapacity or death of the settler makes a living trust an irrevocable trust. A joint trust, however, sometimes allows either settlor acting alone to amend the living trust. Your estate planning attorney will help you determine whether a joint trust makes sense for your family.

Powers of attorney (POA) allows a person (the principal) to authorize another person (the agent) to act as a representative over some or all of the principal’s own legal and financial affairs. The POA does not have any power over a trust; the trustee is in charge of the trust. A POA can be effective on signing or effective upon incapacity of the principal. POA forms do not always reflect specific individual wishes, so it’s best to have one created by an estate planning attorney.

The Advance Health Care Directive (AHCD) delegates authority to an agent to make decisions and act on the principal’s needs in health care. The AHCD must be created and be in place before incapacity occurs. An incapacitated person cannot sign legal documents.

Reference: Lake County Record-Bee (Feb. 18, 2023) “Understanding estate planning documents”

Does Divorce Have an Impact on Estate Planning?

“When you're in the midst of a divorce, you're probably not thinking about estate planning or your will. However, if you're divorcing, you should think about the impact a divorce can have on an estate plan.”

Even the most amicable divorce requires a review and update of your estate plan, as explained in a recent article from yahoo! finance, “I’m Divorcing. Will That Impact My Estate Planning?” This includes your will, power of attorney and other documents. Not getting this part of divorce right can have long-term repercussions, even after your death.

Last will and testament. If you don’t have a will, you should get this started. Why? If anything unexpected occurs, like dying while your divorce is in process, the people you want to receive your worldly goods will actually receive them, and the people you don’t want to receive your property won’t. If you do have a will and an estate plan and if your will leaves all of your property to your soon-to-be ex-spouse, then you may want to change it. Just a suggestion.

State laws handle assets in a will differently. Therefore, talk with your estate planning attorney and be sure your will is updated to reflect your new status, even before your divorce is finalized.

Trusts. The first change is to remove your someday-to-be ex-spouse as a trustee, if this is how you set up the trust. If you don’t have a trust and have children or others you would want to inherit assets, now might be the time to create a trust.

A Domestic Asset Protection Trust (DAPT) could be used to transfer assets to a trustee on behalf of minor children. The assets would not be considered marital property, so your spouse would not be entitled to them. However, a DAPT is an irrevocable trust, so once it’s created and funded, you would not be able to access these assets.

Review insurance policies. You’ll want to remove your spouse from insurance policies, especially life insurance. If you have young children with your spouse and you are sharing custody, you may want to keep your ex as a beneficiary, especially if that was ordered by the court. If you received your health insurance through your spouse’s plan, you’ll need to look into getting your own coverage after the divorce.

Power of Attorney. If your spouse is listed as your financial power of attorney and your healthcare power of attorney, there are steps you’ll need to take to make this change. First, you have to notify the person in writing to tell them a change is being made. This is especially urgent if you are reducing or eliminating their authority over your financial and legal affairs. You may only change or revoke a power of attorney in writing. Most states have specific language required to do this, and a local estate planning attorney can help do this properly.

You also have to notify all interested parties. This includes anyone who might regularly work with your power of attorney, or who should know this change is being made.

Divide Retirement Accounts. How these assets are divided depends on what kind of accounts they are and when the earnings were received. The court must issue a Qualified Domestic Relations Order (QDRO) before defined contribution plans can be split. The judge must sign this document, which allows plan administrators to enforce it. This applies to 401(k) plans, 403(b) plans and any plans governed under ERISA (Employment Retirement Income Security Act of 1974).

Divorce is stressful enough, and it may feel overwhelming to add estate planning into the mix. However, doing so will prevent many future problems and unwanted surprises.

Reference: yahoo! finance (Feb. 3, 2023) “I’m Divorcing. Will That Impact My Estate Planning?”