Remarriage protection: why to add it to your will?

Wedding cakeWhen you die, will your spouse grieve until the day he or she dies? Or will someone else come along and become the new spouse?

Does your will address this possibility?

In this age of longer lifespans, chances are good that another husband or wife may replace you after your demise. That possibility raises a number of issues you probably haven’t considered. What if:

  • the new spouse winds up inheriting everything? Will anything go to your kids?
  • your spouse falls prey to an opportunistic gold digger?
  • your spouse ends up spending everything on the new spouse’s nursing home care?

The list of potential bad endings goes on and on. But you can do something to ensure a better outcome.

Leaving assets to your spouse in a trust can provide the security you desire, while limiting the potential havoc to your estate planning intentions. A well drafted trust can be easy to administer and leave your spouse living comfortably. But it can also contain provisions that restrict where the money can go in the event your surviving spouse remarries or cohabitates.

A trust with remarriage protection not only ensures that your assets go where you intend, it actually does the surviving spouse a favor by making exploitation less likely.

At our estate planning workshops, we discuss many techniques for making your estate secure after you are gone. The workshop is free, but you must register ahead of time to make sure you have a seat.

Two must-have estate plan provisions for parents with minor children

EP2Despite our “elder law” moniker, we frequently write estate plans people of all ages.

When I see parents whose children are minors, I make sure to address two specific issues that are usually not important with elderly clients. If you parent minor children, make sure your will addresses these issues too.

Nominate a guardian. Who will raise your children if you’re not there? If you’re single, your death takes away the only caregiver. If you’re married, it’s possible you and your spouse could perish in a common accident.

State laws provide a procedure for naming a legal guardian in such a case. In Pennsylvania, an Orphans’ Court judge has the authority to appoint a guardian. Judges give great weight to a nomination contained in a parent’s will.

So your last will and testament should contain a clause nominating a guardian to raise your children if you’re deceased.

Appoint a trustee. Most parents leave life insurance proceeds or some other financial assets to benefit their children in the event of the parent’s death. But who will manage the money?

You should appoint a trustee to manage the money until your children are older.

There are a number of important related issues you will need to discuss with your attorney in order for your will to suit your particular situation. For example:

  • Should the trustee be a person, or a corporate trustee like a bank or trust company?
  • If the trustee is a person, is it the same person as the guardian or should it be someone different?
  • How old should your children be before they receive the funds held by the trustee – 18, 25, 32, 45?
  • What can the trustee spend trust money on, and with how much discretion?

These are just a few of the many questions you should discuss with experienced legal counsel in order to get the details right.

For that matter, you will need other will provisions and other important documents to make up a complete and effective estate plan. But if you have small children, make sure you have the trustee and guardian issues covered.

3 keys to a great estate plan

EP2As an elder law attorney, I see hundreds of estate plans every year. Most are adequate – they cover the minimum requirements and are not so outdated that they no longer make sense.

You could easily do that too. For $10, you could buy some basic forms at a legal stationery store, fill them out to the best of your ability, and have them witnessed and notarized. Presto! You have an adequate plan that may work well most of the time. Unless something unexpected happens.

Or, with a little more investment of time and money, you could have a great estate plan – one that provides protection for you and your assets during your lifetime (especially if something bad happens to you), security for your spouse and family, and protection of beneficiaries after you’re gone.

Here are my three keys to having a great estate plan.

Cover all the bases

In the noir classic film Body Heat¸ actor William Hurt talks to Mickey Rourke (playing a convict) about how to commit a murder. “There are about 50 things that can go wrong,” Rourke tells him. “If you think of 25, you’re a genius.”

Estate planning can be like that too.

To have a great estate plan, you should sit down with an experienced estate planning attorney and go over everything that could arise in the coming years – the 25 issues you can think of, and the other 25 that never would have occurred to you. Here are just a few:

  • What happens if you or your spouse die unexpectedly? Do you realize all the ramifications?
  • Does your estate plan minimize income taxes and capital gains taxes, and if so, how?
  • What happens if you become incapacitated – does your power of attorney not only appoint someone to act for you, but also prescribe the precise powers they will need to provide for someone in your exact circumstances (taking into consideration the 2014 changes to Pennsylvania’s POA statute)?
  • If one of your children dies before you do, how does your estate plan address that contingency?

A great estate plan covers all the bases and provides for as many of the unexpected hazards of life as possible.

Here is where working with an estate planning attorney pays off. You benefit from the experience gained from seeing thousands of estate plans go well and go wrong. We know what to look for.

Provide for asset protection

When it comes to asset protection, garden variety estate plans just don’t cut it. I can’t tell you the number of times a client has come to me in a crisis (nursing home admission, death of a family member, sudden incapacity) and poorly drafted (or non-existent) estate planning documents actually prevent the client from protecting assets.

For example, we could save the family hundreds of thousands of dollars by transferring funds to a spouse or disabled family member, and thereby qualifying for Medicaid benefits, but the power of attorney prohibits the transfer.

A great estate plan foresees the ways someone with your assets, in your circumstances, might stand to lose the assets that provide security for you and your family. It then gives you the tools you need to weather a crisis.

For this reason, a great estate plan is surprisingly cost-effective.

Protect beneficiaries after you’re gone

A will most people consider “adequate” divides assets among the person’s beneficiaries after the person’s death.

Here is a short list of problems I have seen with poorly considered distribution plans:

  • A $350,000 distribution going to a low-interest sequestered account for a minor, and then handed over to the beneficiary at the age of 18. (Wouldn’t it have been better to have the funds invested and managed by a responsible trustee, and used for support and education until the beneficiary reaches age 25 or 30?)
  • A $110,000 bequest to a disabled grandchild made the beneficiary ineligible for her federal disability benefits and Medicaid health care coverage. Court intervention was needed to place the bequest into a special needs trust. However, if any funds are left when the beneficiary dies, they must be used to repay the state for lifetime benefits. With better planning, any remaining funds could have benefitted other family members.
  • An inherited IRA worth roughly $300,000 lost to creditors when the beneficiary went into bankruptcy. (See the 2014 U.S. Supreme Court case, Clark v. Rameker.) A trust would have provided protection that the Bankruptcy Code does not.

A great estate plan not only divides your assets, it protects them for your beneficiaries in case of divorce, disability, financial problems, and any number of other potential hazards.

Learn more

At our estate planning workshops, you can learn more about the latest techniques for having a great estate plan. See our Events Calendar for dates and times, and call (412) 531-7123 to register.

How are people related? Understanding consanguinity

Test your knowledge with this question: What relation to you is the child of your cousin?

  1. Nephew
  2. Cousin
  3. Second cousin
  4. First cousin once removed

The question raises an issue of “consanguinity” – the relatedness of family members. As an estate planning and elder law attorney, I constantly need to know how to refer to relations based on blood and marriage.

I rely on a consanguinity chart to help me with the trickier questions of relatedness. You can find an example here. A chart visualizes the relations and makes it easy to find the correct term.

As to the quiz question above, most people pick C, second cousin. But the correct answer is D, first cousin once removed.

Your first cousin is the child of your aunt or uncle, and also the grandchild of your grandparents. Your second cousin is the grandchild of your great-aunt or great-uncle, and also the great-grandchild of your great-grandparents.

But the child of your cousin is your first cousin once removed. What makes the title “first cousin once removed” so confusing to me is that it is also the title of your second cousin’s father or mother. It turns out, though, that each type of “first cousin once removed” shares the same percentage of your DNA, as you can see from this chart.

See why I use a consanguinity chart? If you do too, you’ll keep even distant relations straight.

Does the client have capacity? (Practice tip)

Here is some advice to lawyers who, at least at times, prepare wills or other estate planning documents for clients. It’s about having an easy but effective checklist for establishing client capacity.

You know you need to establish that a client has mental capacity. But do you know, off the top of your head, all the elements of testamentary capacity in your jurisdiction? If someone ever subpoenaed your file, say in a subsequent will contest, would you be able to show that your file documents your determination that the client had capacity at the time of document execution?

Here is an easy system to make sure you can establish client capacity every time.

First, research the statutes and case law in your state about what constitutes capacity. In Pennsylvania, where I practice, the statute on the requirements for a valid will simply requires a testator to be “of sound mind.” The case law expands on the meaning of that simple phrase.

Here is an excerpt from a case that nicely summarizes Pennsylvania law on this point:

The following factors must be considered to determine if a testator had testamentary capacity:

  1. Knowledge regarding the natural objects of his bounty. This frequently will be knowledge of relatives where some or all are to be beneficiaries. Understanding who the persons are who are to share in the estate will normally satisfy this consideration.  
  2. Knowledge of property and of what the estate consists. However, testator need not know every asset. Where testator intends to give all of his property to one person, his knowledge of his property is of little bearing.  
  3. Understanding what testator desires to do with the property in the estate.

The case is In re: Estate of Ballas, a lower court opinion with the citation: 2010 Pa. Dist. & Cnty. Dec. LEXIS 552, *26-28. (I have supplied the underlining and omitted citations from the text.)

The same case nicely summarizes other relevant points about capacity:

Testamentary capacity need not rise to the same level required to conduct business affairs. Testator may have capacity although old, weak and sick. Physical weakness will not create incapacity as long as sufficient mental capacity exists. A faulty memory alone is not sufficient proof of incapacity.

It is recognized that a testator is entitled to his own prejudices. Eccentricity is not equivalent to incapacity. Lucid periods are recognized by the courts.

(Again, citations are omitted.)

Keep your short list of requirements handy to go through with clients, especially those whose capacity could be questioned later on. Document the answers.

If you believe the client has sufficient knowledge to establish capacity, your documented responses will put you and your client in good stead against any future scrutiny.

If the client has insufficient knowledge, or you have doubts about capacity, you may need to seek a professional opinion from a doctor or psychologist before proceeding further. If the client lacks capacity, of course, decline the engagement.