Estate Planning Tips
There are several estate planning tips most are not aware of.
The percentage of married households in the United States fell from 55 percent in 1990 to 48 percent in 2010. About 40 percent of all marriages end in divorce. Three quarters of people who divorce remarry — accounting for a pretty large proportion of the 48 percent of American households that are married.
Nearly 1.5 million babies a year are born to unmarried women, more than a third of all births. This can complicate matters, especially when the father is not identified or, in the case of donated sperm, does not exist. It also can mean a greater need for planning when there is no identified back-up parent if something happens to the mother.
If you are in a relationship, but not married, have been married more than once, have children by more than one partner, or have beneficiaries who cannot manage funds for one reason or another, then it’s more important that you do estate planning. And you need more than legalzoom to accomplish your goals.
1. Give Your Partner The Ability to Help You: There are laws in place empowering spouses and governing the distribution of property in the event of death. The so-called “rules of intestacy” provide that property will pass to spouses and children, or to parents if someone dies without a spouse or children. There are no laws to protect unmarried partners or unadopted children. There have been many cases of parents pushing aside the same-sex partners of their children upon death or incapacity. Wills, trusts, durable powers of attorney and health care directives, pre-nuptial agreements, post nuptial agreements, property agreements, allow you to choose who should step in for you when needed and who should receive your property.
2. Consider All of the Stakeholders: All too often, despite the best of intentions and good will, when parents remarry the new family doesn’t bond. The children from prior marriages or relationships don’t become friends with one another or with the new spouse of their father or mother. Frequently, the death of one spouse means that all of the assets of both families end up with the surviving spouse and ultimately pass to his or her children and grandchildren. If that is not what the couple wants they have to articulate their desires and put a structure in place that is communicated to all of the important parties and then memorialized so that it can be carried out. Again, wills, trusts, durable powers of attorney, health care directives and written agreements permit the couple to choose the outcome they prefer rather than letting it fall to chance.
3. Consider Goals First then Pick the Tools: No planning can take place in a vacuum. And no one size fits all plan works. Anyone considering planning for themselves and for loved ones, whether in a traditional or non-traditional relationship, needs to start by setting goals. Is the goal leaving money for the surviving partner? Leaving an inheritance to children (his, hers, theirs)? Disabled children? Charitable giving? Most of us don’t have just one goal, but you should start by identifying them. Ultimately, the estate plan should reflect the couple’s goals and priorities. While this is true of anyone doing estate planning, it is more important the more family and non-family bonds you have because the plan will have to balance more interests.
For instance, in Pennsylvania, inheritance tax rates are different for different classes of beneficiaries. For instance, assets going to an unmarried partner are taxed at 15%. Assets going to a spouse are taxed at 0%. The rate for unadopted children is 15%. The rate for adopted children is 4.5%. However, a spouse has an obligation to pay for long term care, an unmarried companion does not.
An adopted disabled child can receive benefits based on your Social Security earnings record. An unadopted child may not.
4. Hash Out the Issues While Everyone Is Happy. With relationships as in business, try to come up with a bail out plan while you are still friends. The best time to come up with how a dissolution of a business will happen is when the business is new and the partners are still friends. The same goes with personal relationships. While most people entering a first marriage have no children and few assets, this is not the case with a second or third marriage. Before getting married again, the couple needs to talk about what they have in mind in terms of mutual financial support of one another and of their children from prior marriages and relationships. And they need to discuss what will happen if things do not work out. Then they need to put their intentions in writing so that there are no misunderstandings down the road. This saves money and stress. If memorialized in writing beforehand, it will also be legally enforceable. If circumstances change, the couple can always modify their agreement.
5. Consider Trusts: Standard wills can be blunt instruments. When you pass away, your property passes to the people you name. Trusts, either separately or within wills, permit more flexible planning. For instance, you may want to permit your new spouse to live in your home for as long as he wants, but for it to ultimately pass to your children and grandchildren. A trust permits you to plan for this scenario, giving your spouse rights, but someone else — the trustee — the power to manage the property and protect it for the next generation. Or a couple could pool all of their resources in a trust for their benefit during their lives, with the funds remaining after they have both passed away to be distributed equally to their respective children.
The bottom line is that our laws for distribution of property and rights in the event of incapacity are based on a family, marriage between one woman and one man with one or more children. That is far less common today. For those who don’t fit the one nuclear family mold, planning is more important because the law doesn’t protect you. Don’t put it off.