Bielski Law Office, Ltd.

Estate Planning Versus a Divorce Decree

Sometimes when people are upset about specific terms of their divorce they will attempt to use estate planning to possibly get around those terms. That is usually not a good idea.

When you think of all the possible things that could be ordered in a decree of divorce, requiring one of the parties to maintain life insurance for a specific beneficiary is probably not one of the first things that come to mind. However, that order is made all the time and it is often the cause of lingering resentment for the ex-spouse who is ordered to pay it.

For example, what if one spouse is ordered to pay the other spouse periodic payments? This order may not be for ongoing support but as the best way to make an equitable division of property. Sometimes the spouse who is ordered to pay might also be ordered to take out a life insurance policy and designate the other spouse as a beneficiary. That way if the paying spouse passes away before all of the payments are made, then the life insurance can be used to make the non-paying spouse whole.

A problem with this is that people often try to get around these orders. How? By designating someone else the beneficiary of the life insurance policies and not making any offsetting changes to their estate plans.

Recently, Market Watch answered what happens in those situations in "Can I leave my stepchildren nothing if my husband dies?"

A reader asked Market Watch a question about her husband's life insurance. It seems that as part of the divorce decree from a previous wife he was ordered to maintain a life insurance policy with his children as beneficiaries until those children reached the age of 23. The policy however listed only the new spouse as a beneficiary.

He had no will and the new spouse wondered if she could keep the insurance money or must she give it to the stepchildren if her husband did pass away.

The answer to the woman's question and other similar questions is simple.

The terms of the divorce can be enforced. The children could ask to have the man held in contempt of court and file a claim against the estate for the amount of the life insurance.

Solution? If her husband is insurable, then he should take out a new policy and designate her as the beneficiary.

Reference: Market Watch (Jan. 12, 2016) "Can I leave my stepchildren nothing if my husband dies?"

Living Trust Tips

People looking to avoid probate are often advised to create living trusts. The trusts can be excellent instruments and it is important to know what assets to put into them and what assets to leave out.

Probate avoidance is an important goal in many estate plans. While there are many techniques and legal instruments that can be used for the purpose, living trusts are the most popular instrument to avoid probate because of their flexibility and ease of use.

Despite that ease of use, people often get tripped up. They are totally unaware of what must be done so the trust works as intended.

The Wills, Trusts & Estates Prof Blog recently offered some advice about this important step in "Tips To Estate Planners To Avoid Probate With Living Trusts."

The tips include:

• Trusts can only be used to avoid probate when assets are transferred to the trust. That means that ownership must be transferred from the individual to the trust.
• Some property might be exempt from probate by state laws. Accordingly, it is a good idea to check the laws in your state. For example, if cars are exempt from probate in your state, then there is no need to transfer ownership of them to a trust.
• Retirement accounts do not need to be transferred to the trust. By law they will pass to the named beneficiary. Just make sure that the beneficiary designation is up to date.
• Get advice on trust creation from your estate planning attorney and accountant to ensure all relevant issues are addressed.

Reference: Wills, Trusts & Estates Prof Blog (Jan. 9, 2016) "Tips To Estate Planners To Avoid Probate With Living Trusts."

With Loopholes Closed What to Do About Social Security Now

In a surprise move Congress closed popular Social Security loopholes for married couples, but that does not mean that all Social Security strategies are gone.

The United States Congress takes a lot of heat for not doing very much. However, sometimes they do make important legislative changes. Recently while elder law and Social Security experts were not watching, Congress closed a couple of Social Security loopholes as part of a larger piece of legislation to ensure the nation does not default on its debts.

The loopholes, known as "file and suspend" and "restricted applications," are complex.

What did they do? They basically allowed married couples to accrue a little bit more money out of the system by carefully filing the appropriate paperwork in a specific order at specific times. The majority of Americans did not take advantage of the loopholes either for practical reasons or because they did not know about them.

That these loopholes have been closed does not mean Americans can no longer plan to maximize their potential Social Security income.

This was the point of a recent article in Time entitled "There's One Simple Social Security Strategy You Can Still Take to the Bank."

The strategy suggested is to delay receiving Social Security benefits for as long as you possibly can. The longer you delay benefits, the more benefits you will receive.

On the other hand, many people cannot afford to delay benefits for the maximum amount of time.

It would be prudent to consult an estate planning attorney to help you weigh your options or help you find appropriate experts in Social Security planning.

Reference: Time (Dec. 31, 2015) "There's One Simple Social Security Strategy You Can Still Take to the Bank."

States Continue to Ease up on Estate Taxes

State governments are rightfully concerned that wealthy elderly citizens will move to other states that have more favorable estate tax laws. In a clear trend this is causing more and more states to do away with or decrease their estate taxes.

State governments with revenue shortfalls face an interesting dilemma. While they can get much needed tax revenue by taxing the estates of wealthy citizens, there is nothing preventing those citizens from moving to different states with lower estate taxes before they pass away.

When such citizens move away that means these state governments with estate taxes do not receive income or capital gains taxes from those wealthy people. In the end, such states must determine which taxes are more important to them and their budgets.

Kiplinger's Personal Finance reports in "More States Giving Heirs a Break on Estate Taxes" that the majority of states have chosen to keep their citizens rather than impose an estate tax.

So, how many state still have an estate tax? At present, this number includes only 14 states and the District of Columbia. Tennessee is the latest state to do away with its estate tax and six other states have increased their estate tax exemptions recently.

Although it might be tempting to say this trend is clear evidence that estate tax revenue is not as important as other revenue, there probably is not enough definitive evidence to make that claim. The political controversy surrounding the estate tax might play some role in this trend amongst the states.

It will be worth watching if the states still imposing the tax continue to face pressure to repeal it to keep the wealthy from fleeing to other states in their retirement years.

Reference: Kiplinger's Personal Finance (February 2016) "More States Giving Heirs a Break on Estate Taxes"

Trump Under Fire Over Actions Surrounding Father's Estate

It is impossible to read a newspaper or watch the news on TV without hearing some mention of Donald Trump's campaign for president. The latest headlines illustrate how family feuds over estates can have unintended consequences.

Donald Trump is well known for his blunt, off-the-cuff comments. He does not seem to have an internal filter like most politicians. It is one of the reasons his supporters like him and his detractors do not.

Given this temperament it should come as no surprise that a challenge to his father's will caused Trump to act out of anger. Consequently, he is now having to answer questions about it.

Trump's older brother was not interested in the family real estate business. He instead became a pilot until alcoholism forced him out of the sky. He died from the disease in 1991.

When Trump's father passed away in 1999, Fred Trump III, Donald's nephew from his brother, spoke at the funeral. That night Fred III's child was born with cerebral palsy. Donald Trump pledged that the Trump family would take care of the child's medical needs.

However, when his father's will was read it was discovered that his brother's family was cut out of the will.

Donald Trump had helped create the will.

His nephew's family claimed Donald and his other siblings had unduly influenced their father who suffered from dementia. They challenged the will. This angered Trump and he cut off support for the child with cerebral palsy.

The Daily Mail has more on this story in "Donald Trump admits cutting off medical treatment for his nephew's sick baby after will dispute with alcoholic brother's family."

Undoubtedly this story will be used for political reasons as long as Donald Trump remains a presidential candidate.

There is, nevertheless, a non-political lesson in all of this.

When families feud over estates, the feuds have a way of affecting others, like the medical treatment of a sick child.

Reference: Daily Mail (Jan. 3, 2016) "Donald Trump admits cutting off medical treatment for his nephew's sick baby after will dispute with alcoholic brother's family."

These Pets Are Probably Richer than You

Leaving money in your estate for the care of a beloved pet is often a good idea. However, there are some people who have taken it to an extreme.

In recent years including pets in estate plans has become more and more popular. People want to know that both their human relatives and their pets will be okay when it comes to distributions from their estates.

Typically, only enough money is set aside in as estate plan to provide for a modest life for the pets. A few pets, however, have inherited extreme amounts of wealth.

Recently, Time published a list of some of these wealthy pets in "The 10 Richest Pets of All Time."

The list includes:

• Gunther III - A German countess left her dog her entire $80 million estate. The trustees of the estate have grown the fortune to $375 million that now belongs to Gunther's child, Gunther IV.
• Toby Rimes - This poodle inherited $40 million when its owner passed away in 1931. However, Toby died a few months later and the estate was divided between various charities.
• Tommaso - This Italian cat was a stray adopted by an elderly woman who left it her $13 million estate.
• Gigoo - A British publisher left his beloved chicken Gigoo a fortune worth approximately $15 million.
• Trouble - Leona Helmsley left her dog Trouble $11 million – although the inheritance was later reduced to a mere $2 million by a judge.

Of course, you do not need to leave a pet anywhere near the above amounts to make sure they are taken care of after you pass away. If you would like to include your pet in your estate, then visit an estate planning attorney to learn about your options.

Reference: Time (Oct. 5, 2015) "The 10 Richest Pets of All Time."

Elderly Poverty Could Rise

A steep decline in the number of elderly people living in poverty is one of the greatest social policy success stories of the 20th Century. If current trends do not change, the success might be fleeting.

The early decades of the 20th Century saw great advances in healthcare that prolonged the average lifespan of people in the developed world. However, as more people began living long enough to be considered elderly, many of them did so in poverty.

Throughout the developed world programs and policies were put into effect that severely reduced the number of elderly people in poverty. In the United States private pension plans, Social Security and convincing people to save for retirement have combined to make elderly poverty relatively rare.

That could change in the near future as the New York Times reports in "An Aging Society Changes the Story on Poverty for Retirees."

There are pressures on all three tools that helped lower elderly poverty.

Fewer and fewer people have private pension plans through their employers. People are not saving as much as they will need for retirement. Perhaps most importantly, an aging population creates stress on Social Security, which relies on current taxes on younger workers to make payments to the elderly. Fewer young workers per every hundred elderly people means there is less money in the system to meet obligations.

It would be a good idea to understand what these changes might mean for your own retirement and estate plans. If you want to leave money to your heirs, you need enough not only for your own retirement years, but also enough to leave in an estate.

Contact an estate planning attorney to help you.

Reference: New York Times (Dec. 22, 2015) in "An Aging Society Changes the Story on Poverty for Retirees."

Guardianship Laws and Elder Abuse

Guardianship laws are meant to protect people who cannot take care of themselves. However, many people think that the laws do not do enough to protect elderly people from abuse.

The process for what happens when an elderly person can no longer handle his or her own affairs and does not have powers of attorney in place is more or less the same in every state. A guardianship petition is submitted to probate court. If the court agrees that the person is legally incapacitated, then the court will appoint someone as a guardian. This person will then be responsible for the elderly ward's financial and personal affairs.

Many people believe there is an inherent bias in most states' guardianship laws.

Guardians are required to make regular reports about the financial affairs of the ward. Although it does not always work, this helps prevent the guardian from taking financial advantage of the ward. However, most of the time guardians are not required to report on the well-being and care of the elderly person.

Consequently, courts do not know if the ward is being abused or neglected unless a third-party makes a report.

Some states are attempting to change this bias by updating their laws to add new reporting requirements.

As the Jackson Free Press reports in "State Eyes Changes to Guardianship Laws," Mississippi has appointed a task force to consider changing its requirements.

Changing guardianship laws to make elder abuse less likely is good and important work. No elderly person should have to suffer from financial or personal abuse.

However, it is also important not to rely on guardianship laws as the only way to take care of incapacitated elderly people. Everyone should get the necessary powers of attorney in place before they become incapacitated to make it less likely that a court will see the need to appoint a guardian in the first place.

Reference: Jackson Free Press (Dec. 22, 2015) "State Eyes Changes to Guardianship Laws"

What to Do after an Alzheimer's Disease Diagnosis

If you or a loved one is diagnosed with Alzheimer's disease, it is important to take immediate steps to ensure that end-of-life care is as comfortable as can be.

There is a common myth that people with Alzheimer's are completely incompetent and cannot be trusted to make their own decisions. It is not true as the early stages of the disease are relatively mild.

People who are diagnosed with the disease early enough can still make their own decisions. However, as the disease progresses most do eventually lose the ability to make their legal decisions as NorthJersey.com points out in "Planning becomes vital following Alzheimer's diagnosis."

The article suggests that people who receive an Alzheimer's diagnosis should get a general durable power of attorney, a health care power of attorney and a living will.

The powers of attorney will allow the person to appoint someone else to handle financial and medical affairs, respectively, when the Alzheimer's patient is no longer able to do so. The living will is used to give advanced directives about what type of treatments doctors should employ to keep the patient alive.

These are important documents to have.

Getting them after an Alzheimer's diagnosis is solid advice. However, even better advice is not to wait until after receiving such a diagnosis. All three documents are part of general estate planning. There is no need to wait until you know you will need them to get them.

Plan ahead and get them now before an issue of competency is raised.

Reference: NorthJersey.com (Dec. 27, 2015) "Planning becomes vital following Alzheimer's diagnosis."

How Healthy Will Elderly Baby Boomers Be?

The baby boomer generation is on average expected to live a lot longer than previous generations, but that does not mean they are expected to be healthier than the elderly of those previous generations.

In 2030, when the last of the baby boomer generation will be fully eligible for Medicare, the average life expectancy of a 65 year old is projected to be 20.1 years.

A recent study suggests, however, that those elderly people who will live longer will do so in poorer overall health than the elderly people from previous generations. It appears, in part, this is because medical science has done such a great job of finding treatments for diseases that often kill people early, such as cardiovascular problems. As people will be living longer, however, they will get other diseases, such as cancer and Alzheimer's, in greater numbers.

The Bangor Daily News reported this story in "Baby Boomers are more likely to spend their last years in worse health than past generations."

This has important implications.

While an individual cannot know for certain whether he or she will be one of the people who live longer and suffer from disease, individuals can play it safe and plan ahead.

The wise baby boomer would plan as if he or she will live as an elderly person for a long time and will likely suffer health complications as a result. This means that baby boomers should get estate plans that include powers of attorney and advanced health care directives. That way should they get sick or become incapacitated in their elderly years their affairs will still be handled by people of their choosing.

Reference: Bangor Daily News (Dec. 29, 2015) "Baby Boomers are more likely to spend their last years in worse health than past generations."