Divorce and Estate Planning

Transcript

I’m Richard Gans. I’m an ACTEC Fellow from Sarasota, Florida and I’m here today with Diana Zeydel, who is an ACTEC Fellow from Miami, Florida and our topic today is Divorce and Estate Planning.

So I get this question sometimes, I’ve named my spouse in my Will as my beneficiary and executor… if I die before the divorce is final, does my spouse get all my property?

Diana Zeydel: And the answer to that generally would be no; that under most state statutes the spouse will be treated as having predeceased for purposes of your estate plan and so the spouse would not receive your assets or be appointed as your executor.

Richard Gans: So what about things like life insurance and IRAs, does the same rule apply there?

Diana Zeydel: Maybe not – under the laws of some states- yes, but under many states- no, so those are assets where, because you have a beneficiary designation, you would need to change your beneficiary designation.

Richard Gans: And what about assets that a couple might own jointly, is there sort of an automatic presumption that one of the spouses dies with those assets, or does something different happen?

Diana Zeydel: There probably isn’t – there’s only one kind of tenancy which is a Tenancy by the Entireties and is only permitted between husband and wife and so if the parties cease to be married, that would dissolve the Tenancy by the Entirety and it would become owned 50/50. However, if a Joint with Right of Survivorship- or you sometimes see on an account JTWROS, in that case, probably the joint tenancy continues and so you would need to dissolve that in order to avoid the surviving spouse receiving the whole account.

Richard Gans: When people get divorced, oftentimes there’s a lawyer involved, can the divorce agreement change some of the stuff that you’ve just told me, for example, can a divorce agreement require that the spouse continue to keep the ex-spouse in the will?

Diana Zeydel: A divorce agreement could certainly do that, that would be known as a Marital Settlement Agreement, and the spouses can contract. You have to be careful, though, because now, if you’re no longer married, these requests become claims. Instead of being a marital bequest that could get a tax deduction, it now becomes a claim, and so you may have someone coming into the estate to assert a claim against the estate, and that may or may not be a comfortable position.

Richard Gans: So along those same lines, people don’t always do what they say they’re going to do and suppose that the divorce agreement or the divorce arrangement says husband or wife must have a will that says certain such-and-such things, and it turns out that when the person dies that the will doesn’t say that? What happens then?

Diana Zeydel: So now you have an agreement between the spouses that’s an enforceable contract so the surviving non-spouse, the surviving former spouse, can come in and assert a claim against the estate to receive what was agreed under the marital agreement.

Richard Gans: Suppose that I would like to disinherit my spouse during the pendency of the divorce. Can I do that?

Diana Zeydel: Probably not entirely. The laws of most states would require a spouse to receive a certain share of the estate, and that share cannot be avoided unless the parties have divorced.  However, you could modify your estate plan to create a bequest for the spouse that is limited to what state law would otherwise require.

Richard Gans: So oftentimes things, when there’s a divorce, assets get divided, and one spouse will get some, and another spouse will get another. Is there any kind of income tax issues there we need to be worried about?

Diana Zeydel: There could be, but if the spouses are still married, there’s a part of the Internal Revenue Code that allows spouses to transfer property between themselves without that being treated as a sale. So that means there’s no income tax, you just receive the property with its historical basis, and that would be the simplest way to handle the division.

Richard Gans: So there’s no income tax on the division, but is there any kind of time frame but that has to get done during which or…

Diana Zeydel: You still have to be married to get the income tax benefits, and if you don’t want these things to be treated as gifts, there is a provision that allows transfers between spouses a year before the divorce and two years after to not have a gift tax result.

Richard Gans: Gotcha. So it sounds like there’s a lot of moving parts in this area. Would it be a good idea for the client’s estate planning lawyer and the client’s marital lawyer to compare notes and get on the same page here?

Diana Zeydel: Yes, that’s always a good idea because those are two separate areas of the law, but as you’ve heard from this talk, it integrates, it’s connected very closely together, so having the lawyers on the estate planning side and the matrimonial side coordinate is very important.

Richard Gans: Okay, great advice. Thank you very much, Diana.

Diana Zeydel: Thank you, Rick.