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May 16, 2021 by Cava Faulkner

Legendary TV and radio host, Larry King, died at Cedars-Sinai Medical Center in Los Angeles on January 23rd, 2021 at age 87. Larry was hospitalized in December due to COVID-19, but he’d recently been moved from the ICU to a regular hospital room after recovering from the virus. However, the famed broadcaster suffered from a number of other health conditions over the years, including multiple heart attacks, kidney failure, and diabetes, and he passed away from sepsis that was the result of an unrelated infection.

Last week, in part one of this series, we discussed how Larry’s decision to create a handwritten will, rather than take the time to consult with legal counsel to properly update his plan for his impending divorce, is likely to result in a lengthy court battle between Larry’s seventh wife, Shawn Southwick King, and his surviving children. Moreover, we also noted that Larry would have been far better off using a Lifetime Asset Protection Trust, instead of a will, to distribute his assets to his children upon his death.

Here, in the second part of this series, we’ll first look at the different ways a Lifetime Asset Protection Trust would have benefited Larry’s children. From there, we’ll discuss the complications that are likely to arise given that two of Larry’s children died before he had the chance to update his plan—and the planning lessons we can take away from this mistake.

Lifetime Asset Protection Trusts: Airtight Protection For Your Child’s Inheritance

A Lifetime Asset Protection Trust is a unique estate planning vehicle that’s specifically designed to protect your children’s inheritance from unfortunate life events, such as divorce, debt, illness, and accidents. At the same time, the trust gives your children the ability to access and invest their inheritance, while retaining airtight asset protection for their entire lives.

For someone with as much wealth and as many heirs as Larry, a Lifetime Asset Protection Trust, built into his Living Trust, would have been an ideal vehicle to protect and pass on his assets to his heirs. To see why, let’s break down how these unique trusts work.

To avoid the court process of probate that’s inherent with a will-based plan, most lawyers will advise you to put the assets you’re leaving your kids in a revocable living trust—and this is the right move. But most living trusts are structured to distribute your assets outright to your children at certain ages or stages, such as one-third at age 25, half the balance at 30, and the rest at 35. Giving outright ownership of the trust assets in this way leaves them at serious risk of being lost or squandered.

While a living trust may protect your loved ones’ inheritance as long as the assets are held by the trust, once the assets are distributed to the beneficiary, all of the protection previously offered by your trust disappears. For example, let’s say Larry’s youngest sons Chance, 21, and Cannon, 20, both racked up serious debt while in college. If they were to receive one-third of their inheritance at age 25, creditors could take their money if it’s paid to them in an outright distribution.

The same thing would be true if Larry’s oldest son, Larry Jr., 58, got divorced soon after receiving his inheritance, only it would be his soon-to-be ex-wife who would claim a right to the funds in the divorce settlement.

In contrast, a Lifetime Asset Protection Trust gives a Trustee of your choice full discretion on whether to make distributions or not. The Trustee has full authority to determine how and when the assets should be released based on the beneficiary’s needs and the circumstances going on in his or her life at the time. And you can even choose to make your beneficiary the Trustee of their own trust (with some restrictions) for even more flexibility and control.

For example, if Larry Jr. was in the process of getting divorced or in the middle of a lawsuit, the Trustee could refuse to distribute any funds. Therefore, the Trust assets would remain shielded from his future ex-wife or a potential judgment creditor should Larry Jr. be ordered to pay damages resulting from a lawsuit.

And because the Trustee controls access to the inheritance, those assets are not only protected from outside threats like ex-spouses and creditors, but from your child’s own poor judgment, as well. For example, if Chance ever develops a substance abuse or gambling problem, the Trustee could withhold distributions until he receives the appropriate treatment.

What’s more, you can write up guidelines to the Trustee, providing him or her with clear directions about how you’d like the trust assets to be used for your beneficiaries. This ensures the Trustee is aware of your values and wishes when making distributions, rather than simply guessing what you would’ve wanted, which often leads to problems down the road.

In addition to airtight asset protection, a Lifetime Asset Protection Trust can also be set up to give your child hands-on experience managing financial matters, like investing, running a business, and charitable giving. For an in-depth discussion of how this works as well as the other benefits offered by a Lifetime Asset Protection Trust, read our previous post, Lifetime Asset Protection Trusts: Airtight Protection For Your Child’s Inheritance.

Although a Lifetime Asset Protection Trust would have been a great way for Larry to protect and pass on his assets to his children, such trusts aren’t for everyone. That said, contrary to what you might think, Lifetime Asset Protection Trusts are not just for the super wealthy.

Indeed, these protective trusts are even more useful if you’re leaving a relatively modest inheritance, since the smaller the inheritance, the more at risk it is of getting wiped out by a single unfortunate event like a medical emergency or lawsuit. However, if your kids are going to spend the vast majority of their inheritance on everyday expenses and consumables, such trusts probably don’t make much sense.

Meet with us, as your Personal Family Lawyer®, to see if a Lifetime Asset Protection Trust is the right option for your family.

Larry Is Predeceased By Two of His Five Children

The final factor complicating Larry’s estate is the fact that two of his five adult children died just a few months before he did. His son Andy King, 65, unexpectedly passed away of a heart attack in late July 2020, while his daughter Chaia King, 51, died just three weeks later in August from lung cancer. Both children were from Larry’s marriage to his third wife, Alene Akins, who Larry wed in 1961.

While Andy and Chaia predeceased their father, Larry apparently didn’t update his estate plan to account for their deaths. Indeed, Larry’s handwritten will, which was created in October 2019, simply states that in the event of his death, “I want 100% of my funds to be divided equally among my children Andy, Chaia, Larry Jr., Chance, and Cannon.”

Had Larry worked with estate planning lawyers to keep his plan updated, rather than creating a handwritten will, his legal team would have ensured that his will and all of his other planning documents were immediately updated to account for the death of any of his beneficiaries. Along those same lines, had Larry worked with lawyers to amend his plan, his documents would have been drafted with provisions that would address the potential for one (or more) of his beneficiaries to pre-decease him, so even if his plan wasn’t updated, Larry’s assets would pass to the appropriate person or persons.

Based on California law, the share of Larry’s assets that would have passed to Andy and Chaia through his handwritten will are likely to pass to their children (Larry’s grandchildren), if they have any. However, this all depends on whether or not Shawn is able to successfully contest Larry’s handwritten will in court, which she has stated she plans to do. If she is successful, then Larry’s handwritten will would be deemed invalid, and his assets would be divided based on whatever previous estate plan Larry had in place.

Regardless of what happens to Andy and Chaia’s share of the estate, Larry’s plan should have been amended to account for their deaths. This brings us to our third and final estate planning lesson.

Lesson #3: Review your plan annually to make sure it’s up to date, and immediately modify your plan following events like births, deaths, divorce, and inheritances.

As Larry’s case shows, your plan won’t do you any good if it’s not regularly updated. Estate planning is not a one-and-done type of deal; your plan must continuously evolve to keep pace with changes in your family structure, the legal landscape, your assets, and your life goals.

And unfortunately, this kind of thing happens all the time. In fact, outside of not creating any estate plan at all, one of the most common planning mistakes we encounter is when we get called by the loved ones of someone who has become incapacitated or died with a plan that no longer works because it hasn’t been updated. Yet, by the time they contact us, it’s too late.

We recommend you review your plan annually to keep it current, and immediately update it following major life events like births, deaths, divorce, and inheritances. We have built-in systems and processes to ensure your plan is always up to date, so you won’t need to worry about forgetting anything.

If you’ve yet to create a plan, have DIY documents you aren’t sure about, or have a plan created with another lawyer’s help that hasn’t been reviewed in more than a year, meet with us, as your Personal Family Lawyer®. We can ensure that your plan stays 100% current, so it works exactly as intended no matter what.

Don’t Do It Yourself

As Larry King’s story demonstrates, do-it-yourself planning can have terrible consequences for your loved ones—and in the worst cases, it can be even worse than if you had no estate plan at all. To ensure your plan works exactly as intended, contact us, as your Personal Family Lawyer®, to review and update your current plan, or create one if you have yet to do so.

With a Personal Family Lawyer® on your side, you’ll have access to the same planning tools and protections that A-list celebrities use, which are designed to keep your family out of court or conflict no matter what happens. Contact us today to learn more.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.

May 14, 2021 by Cava Faulkner

No matter who you are voting for on November 3rd, you may want to start considering the potential legal, financial, and tax impacts a change of leadership might have on your family’s planning. And as you’ll learn here, there are a number of reasons why you should start strategizing now, because if you wait until after the election, it will very likely be too late.

Although the election outcome is impossible to predict, some polls show Joe Biden with a healthy lead over Donald Trump and the Democrats could be poised to take a majority in both houses of Congress. Such a Democratic sweep will likely have far-reaching consequences on a number of policy fronts. But in terms of financial, tax, and estate planning, it’s almost certain that we’ll see radical changes to the tax landscape that could seriously impact your planning priorities. And while it’s unlikely that a major tax bill would be enacted right away, there’s always the possibility that when legislation does pass it could be applied retroactively to Jan. 1, 2021.

With that in mind, in this two-part series, we’ll outline the major ways Biden plans to change tax laws, so you can adapt your family’s finances and estate planning considerations accordingly. Although you may decide to put off any actual changes to your estate plan until after the election, if you have any big transactions on the horizon, or if you have an estate that could be worth $1 million or more when you die, we suggest you at least start strategizing now. That way, you’ll have plenty of time to take the appropriate action before the end of the year, which will undoubtedly be a chaotic period regardless of who wins the election.

Focus on high net-worth taxpayers

While Trump has yet to release any formal economic proposals for a second term, Biden’s proposed economic agenda is essentially focused on raising some $4 trillion of new revenue over the next 10 years. The vast majority of this revenue would come from increasing taxes on high net-worth individuals.

Under Biden’s plan, “high net-worth individuals” are taxpayers earning more than $400,000. Those earning less than that would generally not see an increase—and perhaps even a decrease—in taxes, at least in the short-term. At this point, however, it’s not clear if the $400,000 threshold would apply equally to singles, heads of households, and/or married joint-filing couples.

Although the specifics haven’t been fully ironed out yet, Biden’s plan would boost tax revenue in a handful of ways:

Increasing the top personal income and capital-gains tax rates
Reinstating the payroll tax on higher incomes
Returning the federal estate and gift tax exemption to prior levels
Eliminating the step-up in cost basis on inherited investments
Capping itemized deductions
Increasing the corporate tax rate

Increased personal income tax rates on the wealthy

Starting in 2018,Trump’s Tax Cuts & Jobs Act (TCJA) reduced the top federal income tax rates on individuals from 39.6% to 37%. Biden’s tax plan would put the top income tax rate back to 39.6% on personal income in excess of $400,000.

This means that everyone earning more than $400,000 a year would see a tax hike. On the other hand, those making less than $400,000 would see no change in their personal income tax rate.

Higher maximum tax rate for capital gains

One of the most dramatic changes proposed under Biden’s plan involves the way capital gains are taxed. Short-term capital gains (assets held for a year or less) are taxed at the ordinary income tax rates, and under Biden’s proposal, those rates would max out at 39.6%. But the tax rates for long-term capital gains would see an even bigger hike.

Long-term capital gains (assets held for more than a year) are taxed at lower rates than short-term gains to encourage long-term investment. Those rates are currently set at 0% for individuals with annual incomes up to $40,000, 15% for incomes between $40,001 and $441,450, and max out at 20% for incomes above $441,451.

The Biden plan, however, would create an entirely new tax bracket just for long-term capital gains in which gains for individuals with incomes higher than $1 million would be taxed at 39.6%. So if you’re making more than $1 million a year, you’d no longer see the benefit of lower capital gains rates.

Given the potential for an increased capital gains tax rate, if you earn more than $1 million a year and are considering a sale of capital-gains qualified assets, or if a sale will bump up your income, you may want to consider accelerating any large transactions, so they’re finalized before the end of the year. If this is the case for you, consult with us, along with your tax and financial advisors, right away for guidance about which transactions should be prioritized and how to maximize your tax savings on each one. Keep in mind, if you wait to contact us about such transactions until mid-November, it’s unlikely we are going to be able to accommodate your needs, so be sure to act now.

Increased Social Security tax on high-income earners

Another way Biden’s plan would raise tax revenue is by subjecting incomes above $400,000 to the Social Security tax. Currently, the 12.4% Social Security tax—also known as the payroll tax—applies only to the first $137,700 of your income. Earnings above that amount aren’t subject to the tax, and the cap goes up annually with inflation.

Biden proposes applying the 12.4% tax to wages and self-employment income starting at $400,001. This means the first $137,700 of your earnings will continue to be taxed at 12.4%, but you will pay no Social Security tax on additional earnings up to $400,000. However, any additional earnings exceeding $400,000 would be taxed at 12.4%.

The untaxed gap, or “doughnut hole,” on earnings between $137,700 and $400,001 would close over time with the annual increases for inflation. This change is designed to bolster the Social Security system by ensuring that the highest income levels are eventually subject to the full payroll tax.

In light of this proposed change, if you are expecting a bonus or other special end-of-the-year compensation, you should consider arranging for the money to be paid out by the end of 2020, rather than waiting until the start of 2021.

Increased estate and gift tax exposure

When it comes to estate planning, the most critical aspect of Biden’s proposed tax increases would be a major reduction in the federal gift and estate tax exemption. Starting in 2018, the TCJA doubled the gift and estate tax exemption from prior levels, increasing to $11.58 million for single taxpayers and $23.16 million for married couples. Any amounts above this exemption you give away during your lifetime or transfer upon your death are subject to a flat 40% tax.

The increased exemption amounts under the TCJA will sunset at the end of 2025, but if Biden wins the presidency, the enhanced exemption could be repealed much sooner. Indeed, Biden proposes to reduce the exemption back to at least the 2017 level of $5.45 million for individuals and $11.58 for couples.

There are others who suggest the federal gift and estate tax under Biden might even return to 2009 levels, when the individual exemption was set at $3.5 million and the estate tax rate was 45%. What’s more, seeing that in the past lawmakers have made estate tax rates retroactive, it’s possible that these changes could be applied retroactively and go into effect as early as Jan. 1, 2021.

Whatever the final outcome, it’s clear that if you have assets valued between $3.5 and $11 million, you need to seriously consider taking steps now to take advantage of favorable estate-tax exemption rates that may never be seen again. To this end, you should consider opportunities to transfer assets out of your estate now in order to lock in the higher exemption amounts.

That said, transferring assets out of your estate, whether done via gifting or other means, can take several weeks to plan, set up, and finalize, so avoid the temptation to wait until after the election to start planning. In fact, you should immediately meet with us, as your Personal Family Lawyer®, to discuss your options and get things started.

By setting your plan in motion now, you can have your strategies in place and ready to go, so you can pull the trigger (if needed) once election results are in.

Next week, we’ll continue with part two in this series on how to prepare your estate plan for a Biden presidency.

May 14, 2021 by Cava Faulkner

When getting a business off the ground, one common mistake business owners make is not establishing a solid legal foundation to protect their company from unforeseen situations and circumstances. The most effective and efficient way to provide this legal bedrock is by putting a set of key legal agreements for your startup in place.

Gleaned from years of business experience and advice from seasoned and highly successful entrepreneurs, we’ve outlined the core four legal documents that a company’s founders should put into place as soon as your business “idea” evolves into a reality.

1. Business Entity Agreements

When starting a business, it’s crucial to select the proper business entity structure in order to maximize tax savings and minimize personal liability. Some of the most popular entity structures include sole proprietorships, general and limited partnerships, C corporations, S corporations and limited liability companies (LLC or even an LLC taxed as an S-Corporation).

Once you choose the most advantageous structure, you should—and are sometimes legally required to—draft the proper entity agreements to lay the groundwork for how the business will be governed and operated. Different entity structures require different types of agreements. For example, C corporations require corporate bylaws, while LLCs use an operating agreement.

These agreements are legal documents that define each shareholder or member’s rights and responsibilities, along with establishing the provisions for running the company, both on a daily basis and in the event one person dies or becomes incapacitated—as well as if the company dissolves. Moreover, these agreements also outline how business communications will be handled, along with how disputes will be resolved.

You may also have a shareholder’s agreement or a partnership agreement, if there are multiple owners of the business, where you want to further define the relationship among the owners.

To avoid any conflicts, these agreements should be created and signed by all parties as soon as the company is launched. As your Creative Business Lawyer®, we can advise you on the entity structure that’s best for your business as well as draft entity agreements to ensure maximum protection.

2. Intellectual Property Assignment Agreements

When launching a new business, you should make sure that all of the intellectual property (IP) brought into the company by its founders before startup, as well as any IP that’s subsequently created by owners and/or employees once the business is operational, is owned by the company, not the individuals. Transfer of IP ownership from individual to the company is done using intellectual property assignment agreements.

These agreements “assign” the company with complete ownership rights to all intellectual property assets—patents, trademarks, and copyrights—that are used to conduct business. Such agreements are typically required by most venture capital investors, and they also help protect the company from competitors and/or trolls looking to steal your ideas or products.

As your Creative Business Lawyer®, we can help you draft IP assignment agreements, so you can retain total control of all IP assets that your business relies on to operate and grow.

3. Employee Contracts and Offer Letters

Unless you plan on running the company all by yourself, you should create comprehensive employment contracts and offer letters before hiring new employees. These agreements clearly lay out the terms and conditions of employment, so your team will understand exactly what’s expected from them.

Employees should be required to sign these documents, providing evidence that both parties are aware of the employment relationship’s scope and conditions. Employment contracts should also include any non-disclosure agreements (NDA) and/or non-compete agreements you require to ensure your company’s trade secrets and/or proprietary systems and products don’t fall into the hands of competitors.

4. Sales and Service Contracts

Whether your company sells products, provides professional services, or a bit of both, you should have legal agreements in place to clearly lay out the rights and responsibilities of both the business and its customers. Sales contracts typically lay out the key elements—price, payment and credit terms, tax responsibilities, warranties, and liability limitations—for the sale of products and other goods.

Service contracts, on the other hand, explain the fees, terms, and conditions under which your company provides services, along with spelling out the responsibilities and liabilities of each party. Ideally, service contracts should offer your company maximum flexibility for delivering the services, while also limiting its liability. Be sure the contract not only covers the traditional terms listed above, but also any unforeseen events or circumstances that may occur.

If you’re starting a new business, or have already started one but still need to draft the necessary legal agreements. We’re experienced in helping entrepreneurs protect their business interests and limit their liability by drafting comprehensive legal agreements. What’s more, we can also help you establish sound legal, insurance, financial, and tax systems for your business, to ensure it experiences maximum growth and minimum hardship.

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.

May 11, 2021 by Cava Faulkner

As we head into the third year of the pandemic, we are coming to terms with just how fragile our lives and health really are. If you haven’t gotten sick yourself, it’s almost certain you know someone who has, and many of us even know of one or more individuals who have died in the past two years.

Although serious illness and death are something we are always at risk for—and should plan for—the pandemic has forced many of us to face our own mortality like no other event in recent memory. Some of those worst-case scenarios we thought would never happen now seem much more likely, and for some people, those unthinkable situations have even become reality.

Understanding The Risks

Yet even if you manage to avoid becoming sick right now, the fact remains that we are all vulnerable to serious illness or injury, regardless of how young or healthy you are. And if you are a parent, one of the most frightening aspects of that reality is knowing that should something happen to you, your children would be left without you to care for them, whether only for a temporary period or permanently.

With this in mind, consider the following scenario: You and your spouse are out to dinner, and your kids are at home with the babysitter. On your way home, you get into a car accident. When you fail to make it home on time, the babysitter calls you repeatedly, but when no one answers, she calls the police.

The police arrive and find your kids with the babysitter, who offers to stay with the children until a relative can be found to take them. But because the babysitter doesn’t have the legal authority to care for the children—even temporarily—the police have no choice but to call Child Protective Services. These authorities will take your children into custody until they can locate and/or appoint the proper guardian.

This is the case even if you have friends or family living nearby who are willing to care for the children. If you haven’t left proper legal documentation, the authorities have no option but to call Child Protective Services. You must give the authorities a legal basis for keeping your children with the friends or family you designate.

What’s more, your kids are still at risk of being taken by the authorities even if you’ve named legal guardians for them in your will. That’s because your will only becomes operative in the event of your death, so if you are incapacitated by an accident or illness, your will would be ineffective.

Or perhaps the guardians you named in your will live far from your home, so it would take them several days to get there. If you haven’t made legally-binding arrangements for the immediate care of your children, it’s highly likely that they will be placed with Child Protective Services until those guardians arrive.

And does anyone even know where you will is located and how to access it?

Most Guardianships Are Lacking

These are just a few of the many scenarios that can cause your children to be taken into custody by strangers or placed with a family member you would never want caring for them. And sadly, we see this happen even to those parents who’ve worked with lawyers to name legal guardians for their children in their will, because most lawyers simply don’t know what’s necessary for planning and ensuring the well-being and care of minor children.

However, as a Personal Family Lawyer® firm, we have been trained by the author of the best-selling book, Wear Clean Underwear!: A Fast, Fun, Friendly, and Essential Guide to Legal Planning for Busy Parents, on legal planning for the unique needs of families with minor children. As a result of this training, we offer a comprehensive system known as the Kids Protection Plan®, which is included with every estate plan we prepare for families with young children.

Developed by a nationally recognized attorney, who is a mom herself, the Kids Protection Plan® provides parents of minor children with a wide array of legal planning tools to make sure there is never a question about who will take care of their kids if they are in an accident or suffer some other life-threatening incident.

The full Kids Protection Plan® includes all of the following:

Legal documents to name short-term guardians, who can be there immediately for your children, so they will never be taken into the arms of strangers or anyone you wouldn’t want. Not even for a moment.
Letters to the people you name as short-term guardians, so the people you have named will know just what to do if called upon.
Instructions to everyone who takes care of your kids as to exactly what to do if you are in an accident, so there’s never any question about what to do or who to call.
Legal documents to name long-term guardians, who will raise your children just as you would, so there is no family feuding over your children.
Letters to your long-term guardians, letting them know exactly what to do if called upon.
Instructions and guidelines for your long-term guardians on how you want your kids to be raised to ensure your kids are raised with your values, insights, stories, and experience.
Medical powers of attorney for your minor children, so the next time they travel without you or you travel without them, you know they will get the medical care they need.
A custom, personalized I.D. card for your wallet stating that you have minor children at home and who should be contacted if you are in an accident.

Here’s How To Get Started

While you should meet with us to put the full Kids Protection Plan® in place as soon as possible, protecting your children is such a critical and urgent issue, we’ve created a totally free website, where you can visit to get your plan started right now.

⇒ If you’ve yet to take any action at all, visit this easy-to-use and 100% FREE website, where you can take the first steps to create legal documents naming long-term guardians for your children to ensure that should anything happen to you prior to creating your formal estate plan, your kids would be cared for by the people you would want in exactly the way you would want. Get started here now: https://christine.kidsprotectionplan.com/

After you’ve completed those initial actions, schedule a Family Wealth Planning Session with us, your neighborhood Personal Family Lawyer®, where we will put the full Kids Protection Plan® in place, and determine if there is anything else your family might need to ensure the well-being and care of your children no matter what happens.

⇒ If you have already named long-term guardians in your will, either on your own or with a lawyer, we can review your existing legal documents to see whether you have made any of the six common mistakes that could leave your kids at risk, and then revise your plan to ensure your children are fully protected.

A Learning Experience

Although the pandemic is likely to go down as one of the most tragic periods of our lifetime, if it motivates more people to get serious about estate planning, it may end up having some lasting positive effects. On that note, if you are a parent of minor children and want to ensure that your kids will always be taken care of by the people you want, in the way you want, no matter what happens to you, meet with us, your Personal Family Lawyer® to put the Kids Protection Plan® in place today.

This article is a service of a Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

May 10, 2021 by Cava Faulkner

Divorce can be traumatic for the whole family. Even if the process is amicable, it involves many tough decisions, legal hassles, and painful emotions that can drag out over several months, or even years.

That said, while you probably don’t want to add any more items to your to-do list during this trying time, it’s absolutely critical that you review and update your estate plan—not only after the divorce is final, but as soon as possible once you know the split is inevitable.

Even after you file for divorce, your marriage is legally in full effect until your divorce is finalized. That means if you die while the divorce is still ongoing and you haven’t updated your estate plan, your soon-to-be-ex spouse could end up inheriting everything. Maybe even worse, in the event you’re incapacitated before the divorce is final, your ex would be in complete control of your legal, financial, and healthcare decisions.

Given the fact you’re ending the relationship, you probably wouldn’t want him or her having that much control over your life and assets. If that’s the case, you must take action, and chances are, your divorce attorney is not thinking about these matters on your behalf.

While some state laws limit your ability to completely change your estate plan once your divorce has been filed, the following are a few of the most important updates you should consider making as soon as possible when divorce is on the horizon.

1. Update your power of attorney documents for healthcare, financial, and legal decisions

If you are incapacitated by illness or injury during the divorce, who would you want making life-and-death healthcare decisions on your behalf? If you’re in the midst of divorce, chances are you’ll want someone other than your soon-to-be ex making these important decisions for you. If that’s the case, you must take action. Contact us now; don’t wait.

Similarly, who would you want managing your finances and making legal decisions for you? In light of the impending split, you’ll most likely want to select another individual, particularly if things are anything less than friendly between the two of you. Again, you have to take action if you do not want your spouse making these decisions for you. Don’t wait, contact us if you know divorce is coming.

2. Update your beneficiary designations

Failing to update beneficiary designations for assets that do not pass through a will or trust, such as life insurance policies and retirement accounts, is one of the most frequent—and tragic—planning mistakes made by those who get divorced. If you get remarried following your divorce, for example, but haven’t changed your IRA beneficiary designation to name your new spouse, the ex you divorced 10 years ago could end up with your retirement savings upon your death.

That said, in most states, once either spouse files divorce papers with the court, neither party can legally amend their beneficiaries without the other’s permission until the divorce is final. Given this, if you’re anticipating a divorce, you may want to consider changing your beneficiaries prior to filing divorce papers. If your divorce is already filed, you should consult with us to see if changing beneficiaries is legal in your state—and in your best interest.

Finally, if naming new beneficiaries is not an option for you now, once the divorce is finalized it should be your number-one planning priority. In fact, put it on your to-do list right now!

May 9, 2021 by Cava Faulkner

Whenever the topic of estate planning comes up, people invariably mention creating a will. And with good reason—having a will is a foundational aspect of your estate plan.

However, a will is only one small part of effective planning. In fact, if your plan consists of a will alone, you’re guaranteeing your family will have to go to court when you die. There’s a saying in the lawyer world of estate planning: “Where there’s a will, there’s.” And it’s no laughing matter.

In our view, a primary goal of estate planning is to keep your family out of court and out of conflict no matter what happens to you. Yet with only a will in place, your plan can fall woefully short of that goal, leaving your loved ones—and yourself, if you become incapacitated —susceptible to getting stuck in an unnecessary, expensive, time-consuming, and public court process.

Here’s why having just a will is not enough:

A will offers no protection against incapacity

A will helps ensure your assets are properly distributed when you die. But it offers no protection if you become incapacitated and are unable to make decisions about your own medical, financial, and legal needs.

Should you become incapacitated with only a will in place, your family would have to petition the court to appoint a guardian or conservator to manage your affairs, which can be extremely costly, time consuming, and traumatic. The first article in this series offers an in-depth look at some of the consequences of failing to plan for incapacity.

Your family must still go to court

While you may think having a will allows your loved ones to inherit your assets without court intervention, this is not true. For your assets to be legally transferred to your beneficiaries, your will must first pass through the court process.

The process can be an extremely distressing for your loved ones. The proceedings can drag out over months or even years, and in most instances, your family will have to hire an attorney, generating hefty legal bills that can quickly drain your estate.

Moreover, so anyone can find out the value and contents of your estate. They can also learn what and how much your family members inherit, making them tempting targets for frauds and scammers.

And if you think you can just pass on your assets using beneficiary designations to avoid all of this… well, that’s just asking for trouble. In fact, we plan to write a whole separate article on that topic in a future installment of this series.

A will doesn’t protect against creditors, lawsuits, or poor decisions

Passing on your assets using a will leaves those assets vulnerable to several potential threats. If your will distributes your assets to your beneficiaries outright, those assets are not only subject to claims made by a beneficiary’s creditors, they are also vulnerable to lawsuits and divorce settlements the beneficiary may be involved in.

And if assets left via a will pass to beneficiaries without any conditions, those assets are susceptible to the beneficiary’s own poor judgment. For instance, a sudden windfall of cash could cause serious problems for someone with poor money-management abilities and/or addiction issues.

Not all assets are covered by a will

Some assets can’t even be included in a will. For example, a will only covers assets or property owned solely in your name. It does not cover property co-owned by you with others listed as joint tenants, nor does a will cover assets that pass directly to a beneficiary by contract, such as a life insurance policy or retirement account.

Don’t let your plan fall short

Though a will is an integral part of your estate plan, a will is almost never enough by itself. Instead, wills are often combined with other planning vehicles, such as living trusts, to provide a level of protection devoid of any gaps or blind spots. And here’s the thing: If your plan is incomplete, it’s your family that suffers, having to clean it all up after you are gone.

Larry King’s Death Highlights the Importance of Updating Your Estate Plan for Divorce and Death—Part 2