How Estate Planning Is Related To Family Law
To better understand how estate planning and inheritance law are related to family law matters, imagine a few different scenarios. First, imagine that you are about to get married. You have two houses, several savings accounts and some investments. You want to be sure that your spouse inherits these if you die suddenly. However, you are worried about high divorce rates and also want a long-term protection plan for yourself and future children. With estate planning, you can protect yourself from losing your assets in a divorce with a prenuptial agreement. If your marriage is happy but you suddenly die early, a will and trust can preserve your assets for your spouse and any children. Earlier, we wrote about how is Family Law important.
Now, imagine that you have been married for 20 years and have three children. Your spouse wants a divorce. You both want custody. In the past, you set up estate plans that left most assets to your spouse, and your spouse would be in charge of distributing them to the children. You now want to exclude your spouse from as much of that as possible and leave it to your children who are all between the ages of 13 and 18 now. The next step is amending your estate planning documents to remove the provisions for your spouse. With community property laws, your spouse will still be entitled to a share of assets acquired during your marriage. However, there are several essential steps to take to protect yourself.
In a final scenario, imagine that you are married and have two dependent young children. Your spouse was in an accident. It resulted in a brain injury and a permanent physical disability. You have a $10,000 life insurance policy through your employer, which you assume will take care of your final expenses. You also assume that your spouse will automatically inherit your money and property and will be cared for with that money. The unfortunate reality is that your assets may be tied up in probate after your death. Your spouse may spend the entire $10,000 on your funeral and will still need money to live on without your income. Savings accounts usually dry up fast, and a spouse who is disabled and needs help with child care, bills and daily living activities would struggle in such a situation. After your spouse's injury, you could put your house and some assets in trusts to protect them from probate and to ensure a stream of income for your survivors.
Types Of Estate Planning Documents
It is helpful to understand the basics of estate planning documents and their functions before trying to tie the connection between family law and estate planning law together.
A living trust or revocable trust is one that can be changed by you if you create it. You can put a house or other assets into a living trust. If you become mentally incapacitated or die, the provisions outlined by you will stand. For example, you may decide that your oldest child should receive your house because she is responsible. If you also have a younger child who is irresponsible but still needs help, you may set up a trust fund for her to go only toward college expenses. The fund may be set up in a way that payments are made directly to a college instead of to the irresponsible child.
The best part of a living trust is its flexibility for change. Imagine the previous scenario, and think about those two children 10 years later. If the irresponsible child became more responsible and finished college during your lifetime, you may decide to change the trust's instructions to allow a set sum of money for her to receive upon your death. You may also wish to include provisions for any grandchildren as they arrive.
If you had a home and assets but no trust for them, they would be tied up in complex and long probate proceedings after your death. Probate taxes are high, and your heirs would stand to lose much more of what you hoped to leave for them through probate and taxes. Also, some of your assets may be seized and sold if you have a considerable amount of debt.
There are other types of trusts to consider. If you have a loved one who is disabled or relies on government income to survive, a special needs trust allows you to set up specific income instructions and a fund for that person. If you want some of your money to go to a specific charity, you can set up a charitable trust for that purpose. When you want to leave money to a spouse for income after your death but want to avoid higher taxes, there is a way to set up a trust specifically for that without severe tax penalties.
Leaving a will behind is a good way to specify your final wishes. Perhaps you want your daughter to inherit your house, an heirloom dish set and some other family keepsakes. You may want to leave your son a sum of money, some heirloom furniture and your coin collection. A will allows you to name specific items to leave to specific people. You can amend the will as you wish to accommodate family status changes. If you have a living trust, a pour-over will is also a benefit. It allows other assets that are not included in the trust to be transferred into the trust following your death.
Power Of Attorney
With a POA, you can name a person to handle your financial matters if you become mentally incapacitated or die. There is also a medical form of this document that allows you to pick one or more people to make medical decisions about life-saving treatments if you become incapacitated.
Having a living will in place saves your family from the burden of making hard decisions about sustaining your life. You can specify what types of care you are willing to receive and which ones you do not wish to receive. For example, you may not want to be resuscitated if you have had two open-heart surgeries in the past. You may not want a feeding tube, a breathing tube and ventilators to keep you alive if you are in an accident. However, you may be willing to receive them for only up to 30 or 90 days before removing them. This prevents you from living in a long-term vegetative state or not experiencing your desired quality of life. When you set up these documents, they are saved into your medical records.
HIPAA Release Form
In the past couple decades, HIPAA has become a major issue and a barrier for access to medical information. The law says that nobody can access your medical information or records without your express permission. If you become incapacitated and your spouse or caregiver needs access to your medical information, obtaining it is a challenge. Your spouse or family caregiver will need access to this information for important insurance paperwork. You can set up a release form to allow access to your information for several named people.
If you have important values or a vision to express to your family or heirs, this is the way to do it. A legacy letter is also considered an ethical will but is not a legal document and does not dictate any distribution of assets. Many people want to express their love, values and wishes for their future generations but are unsure how to do this. A legacy letter or video can be kept in an estate planning file and distributed to heirs or named recipients after death.
Why It Is Important To Work With A Family Law Attorney
There are several reasons why it is important to work with a professional who knows family law, estate planning law and inheritance law. With the increase in popularity of DIY projects today, there are DIY estate planning software programs. However, these programs do not offer the same in-depth insight and personalized advice that only a trained professional can provide.
Every person's situation is unique, which is why a cookie-cutter program will not suffice when it comes to setting up a solid plan of protection for children or heirs. For example, a person who mistakenly thinks that his house will be seized when moving into a nursing home may set up an irrevocable trust and name his spouse in it. If the marriage crumbles, the spouse will still be entitled to the assets in it. This is because an irrevocable trust essentially transfers ownership of any named items to the beneficiary, and it can only be changed with the beneficiary's cooperation.
Some people may want to set up estate plans that allow for a good or bad outcome in a marriage to protect their children. This can be a sensitive subject to bring up with a spouse. Working with a professional who knows how to talk with couples and help them see the realities and importance of estate planning is vital. If you are ready to set up an estate plan to protect your family from probate and taxes or you want to amend an existing plan, please contact us for a complimentary consultation.