Pre and Post Nuptial Agreements in Colorado
What is a Marital Agreement?
Pre- and postnuptial agreements (marital agreements) are important tools for couples to manage their assets and avoid conflict, both before and during their marriage and as part of the process of separating if the marriage ends. Prenuptial agreements are contracts executed prior to marriage and post-nuptial agreements are contracts made between the spouses during the marriage, that allow the parties to agree to and delineate the division of assets should a legal separation, divorce or death occur. These agreements are legally binding contracts which can protect both parties by creating a plan that if conscionable will be enforceable and predictable – thereby taking the potential conflict out of the difficult process of separating.
Every couple should consider a marital agreement as a potential tool to enable them to plan for the future, protect their assets and avoid conflict. Couples who do not have a marital agreement are subject to the provisions of the Colorado Uniform Dissolution of Marriage Act, which will determine their rights in the case of separation or divorce; and the Colorado Probate Code, which will determine the rights of the surviving spouse and other heirs, upon death if proper estate planning has not been completed.
How Colorado Law Works for Couples without a Marital Agreement
Individuals that are married and living in Colorado have statutory rights if the marriage terminates by divorce. Colorado law defines two types of property that can exist during the marriage. Separate property is the property owned prior to the marriage, and all property received by gift or inheritance during the marriage. Marital property includes all property earned by either spouse during the marriage, including deferred compensation; and all income and appreciation on separate property, whether realized or not – regardless of how the property is titled.
When a couple divorces in Colorado, each party keeps his or her separate property – if it was kept separate during the marriage and not co-mingled with marital property. If the parties cannot reach an agreement about the division of property during a divorce, the court is directed to divide the marital property in the proportion that it deems just after considering all relevant factors.
In addition to dividing marital property, a divorce court can award maintenance if it finds that one of the parties lacks sufficient income or property to provide for his or her reasonable needs. The amount and length of a maintenance order is determined by the court’s just determination after considering all relevant factors. Colorado courts have been unpredictable in awarding maintenance and thus it could have a significant financial impact on both parties.
Why Should Couples Consider Marital Agreements
Marital agreements can be used to define the parties’ rights in regards to the appreciation of separate property and all marital property accrued during the marriage. Couples who have children from previous marriages are able to provide for these children and protect their inheritance in the event of a divorce from a subsequent spouse. If one of the spouses owns a business, a marital agreement can ensure that the new spouse does not become entangled in the company should a separation occur.
Marital agreements identify, define, and resolve legitimate issues related to the couples’ finances, estate plans and business interests – while the parties are free of the emotional turmoil created during a separation process. Advantages of premarital agreements for both parties include:
Avoiding litigation costs
Protecting against fears of family members such as children from previous marriages
Protecting family assets
Protecting business assets
Protecting against creditors
Predetermined and thus predictable disposition of property
Contents of a Colorado Prenuptial Agreement
A marital agreement may address the following issues:
1. Spousal Maintenance: whether it is waived, set at a predetermined amount, based on years of marriage, etc.
2. Division of property and debts: whether assets acquired after the marriage are kept separate; whether future appreciation on existing assets are separate property; how to apportion pension funds, retirement benefits or other intangible assets.
3. Inheritance: a spouse may agree to waive his or ability to take an elective share of the estate thereby protecting children from a previous marriages’ legacy.
4. Rights and obligations under insurance policies, employee benefit plans, and other assets such as these.
5. Waiver of Rights Upon Death: a common provision in prenuptial or postnuptial agreements designed to prevent probate laws or prior wills from trumping the terms of the prenuptial or postnuptial agreement.
6. Alternative Dispute Resolution: a provision requiring the complaining party to mediate or arbitrate any dispute and preventing him or her from filing a costly lawsuit.
7. Attorney’s fees: who pays for attorney’s fees if the parties are unable to abide by the terms of the agreement.
If the parties have children during the marriage, a marital agreement cannot legally bind either party to agreements made regarding child support, physical custody, parenting time and decision-making authority. The parties may agree on proposed terms for these issues but these terms would be subject to the court’s later approval.
What does a Marital Agreement do?
A marital agreement allows the engaged or married couple to negotiate around Colorado law in order to define separate property and marital property. By means of a marital agreement you can define separate property to include all income from and appreciation on your separate property. You can also protect your earned income by defining that as separate property, so that assets purchased or investments made with your earned income will remain your separate property upon divorce. Thus, by altering the definitions of separate property and marital property from those provided by statute, you can protect not only the core of your separate property which you amassed prior to your marriage, but also the earnings from and appreciation on that property. If you wish to restrict your spouse’s rights upon divorce to your earned income, including retirement benefits, you can do that as well.
Spouses can waive their rights to maintenance payments in a marital agreement or they can agree to a certain amount of maintenance to be paid to the less wealthy spouse in the event of a divorce. However, if at the time of a divorce, the court determines that the spousal maintenance terms in the agreement are unconscionable, the court can render that portion of the prenuptial null and void.
Finally, a marital agreement can allow couples to determine what rights a surviving spouse will have upon the first spouse’s death. For example, in many marital agreements, each spouse waives his or her right to reject the terms of the others’ will and elect to take up to half of the estate outright (depending on the length of the marriage). Such a waiver ensures that the estate plan of the first spouse to die will be honored by the surviving spouse.
Why Couples Choose to Alter Spousal Rights Provided by Law.
Couples choose to alter their statutory rights for a number of reasons. Some people simply wish to have certainty as to property rights and maintenance payments upon a potential divorce. By entering into a marital agreement, they eliminate much of the financial uncertainty associated with a divorce. A fairly negotiated marital agreement can provide some assurance to the wealthier spouse as to the extent of the financial impact of a divorce and provide the less wealthy spouse with some guarantee to his or her entitlement to property distribution and maintenance.
People who have children from a previous marriage may wish to protect their assets for these children’s benefit. A marital agreement that addresses the rights of a surviving spouse can protect the deceased spouse’s estate for the benefit of children from a previous marriage as well.
Sometimes parents encourage their adult children to enter into a marital agreement in order to protect assets owned by the child that were accumulated by previous generations. Usually, a wealthy family wants to ensure that assets that have been gifted to adult children do not become vulnerable to the spouse in a divorce situation.
Enforceability of a Marital Agreement.
Colorado adopted the Colorado Marital Agreement Act in 1986. This statute allows the waiver of statutory property and maintenance rights of spouses either before or during a marriage. Thus, the general statutory rule is that marital agreements are valid and binding contracts. However, one party can have the agreement voided if he or she did not sign it voluntarily or if the other party did not provide a fair and reasonable disclosure of his or her property and financial obligations.
When one spouse challenges the validity of a prenuptial, the court will look at several factors to determine whether the agreement should be enforced. The two most important factors the court considers are the adequacy of the financial disclosure and whether either party was under duress when signing the agreement. Full and complete disclosure of all assets is required prior to the signing of the prenuptial agreement because a party cannot knowingly waive rights unless he or she has sufficient information about the potential value of those rights. Duress is reviewed as a question of fact and the court may consider factors such as the timing of the agreement (i.e., was the spouse forced to sign it right before the wedding, etc.) and whether each spouse had
independent counsel. It is extremely important that both parties have their own legal adviser during the preparation and execution of a marital agreement.
Spendthrift Trusts
In plain English without the legalese, a spendthrift trust allows you to leave money to a loved one with supervision so that they don’t spend it all frivolously and so that it goes to their needs rather then their “wants or habits”.
A spendthrift trust’s purpose is to regulate a beneficiary’s access to the funds or assets held within the trust account. It’s an important tool that can help guarantee your beneficiaries are taken care of, while simultaneously ensuring your assets are distributed according to your specific wishes.
Spendthrift trusts are usually set out in the Grantor’s Will and become effective upon the Grantor’s death. The trust can be revocable (the grantor can change his mind) or irrevocable (the grantor cannot change his mind). Spendthrift trusts operate a bit differently than other trusts.
A spendthrift trust includes what’s called a spendthrift clause or spendthrift provision. This caveat permanently designates the trust itself as the sole owner of the assets held within it, rather than transferring ownership to your beneficiary upon your passing.
The beneficiary will still receive the assets, however — they’re released from the trust over time, on a schedule you (the grantor) and your trustee determine when you create the trust. This incremental release of assets can help protect your estate from any irresponsible spending habits while still providing your loved ones with the inheritance you’ve set aside for them.
The main benefit of a spendthrift trust is that it can protect your assets from a potentially unreliable beneficiary. It safeguards your estate without taking the beneficiary’s inheritance from them.
In addition to asset protection, spendthrift trusts can help protect your beneficiaries from creditors. Because the assets included in a spendthrift trust are owned by the trust and managed by the trustee, they aren’t considered a part of your beneficiary’s assets.
Let’s say you plan to leave a $100,000 estate to your beneficiary, but you want to ensure the money is handled responsibly. By using a spendthrift trust, you can still leave that money to your beneficiary while portioning it out to encourage healthy financial habits.
You schedule releases of money at a cadence that feels manageable to you and your beneficiary and in this way, you can guarantee that money will go to your beneficiaries in more manageable chunks, as opposed to distributing the entire $100,000 at once.
Setting up a spendthrift trust is similar to setting up any type of trust, but it includes a few extra steps. The biggest difference is that you’ll have to set the terms for how you’d like to release your assets. These terms can be as complicated or as simple as you’d like.
I’m happy to answer questions about creating a spendthrift trust as a part of your estate planning if you have a loved one whom you feel could use a little more attention in reagrds to their inheritance from you. You can schedule a complimentary consultation here.
Medical Power of Attorney - Choosing Your Agent
In completing your POAs its important to choose an appropriate agent. Here are five criteria to think about in relation to choosing an agent for your medical power of attorney.
1. Personal belief: Since the concept of withholding artificial-life support runs contrary to the teachings of some religions and is a very personal decision, it is helpful to find a healthcare agent who understands your feelings in this regard and whose own beliefs are not contrary to your own.
2. Communication: It is important to choose someone you are comfortable speaking with about your health care wishes and it should be clear to you that not only do they understand them but they will be able to communicate these to your health care providers and family members if necessary.
3. Practical reality: Its critical that the person you choose is willing to accept responsibility and agree to act as your agent - "ready and able to serve".
4. Voice: In choosing an agent be sure that they will be able to speak up and stand firm on your behalf - even if faced with physicians who are advising otherwise or other close family members who disagree.
5. Availability: Make sure this person is likely to be accessible and capable of serving as your agent well into the future.
Revocable Living Trusts In Your Estate Plan
Estate Planning: The Use of a Last Will versus a Revocable Living Trust
Many clients come in asking about setting up a Trust rather then a Will for their estate planning. Trusts are very trendy right now, especially in states like California where the probate process is expensive and complicated.
Each of these estate-planning tools has pros and cons. The following information is meant to make sure you understand the differences and enable you to make an informed decision about which estate-planning method is right for you.
When a Last Will is used, it does not become an effective document until death. A Last Will requires the property of the decedent to go through the probate process prior to being distributed. Probate is the process by which a Last Will is presented to the court, the court authorizes the representative of the estate to take possession of the decedent’s assets, the creditors of the decedent are notified, and, approximately four months later, the representative pays the creditors and then distributes the assets to the intended beneficiaries.
When a Revocable Living Trust is used, the assets titled in the name of the trust are not part of the decedent’s estate, and do not need to go through the probate process. As soon as the individual who set up the trust dies, the alternate trustee named in the trust is entitled to take control of the assets without any court involvement. Importantly, this process also happens when the person who set up the trust becomes incapacitated.
Colorado has an informal probate process. The probate court is minimally involved with the process, and thus most probates here are both inexpensive and efficient. However, as noted above it does take about four months to complete the process. In a Revocable Living Trust based plan, the immediate ability of the alternate trustee to access the assets in the trust upon the incapacity or death of the settlor of the trust is definitely an advantage if time is a consideration.
If you choose to use a revocable-living trust based estate plan, your personal residence, vacation home, and investment accounts and other types of property are usually transferred into the name of the trust, requiring retitling of these assets, but tax advantaged retirement accounts are usually not. This process of retitling the assets is one of the two disadvantages of using a Revocable Living Trust when compared to a Last Will-based estate plan. The second disadvantage to the Revocable Living Trust is that it is typically more expensive than a Last Will based plan.
I generally recommend a Last Will based estate plan here in Colorado because of our informal probate process. I recommend a Revocable Living Trust based plan to my clients who meet any of the following criteria:
➢ complex asset management needs or diverse types of investment assets since Revocable Living Trusts provide a very strong asset management tool;
➢ property outside the state of Colorado (since such property can be placed in the Trust, no additional probate proceeding will need to be opened in the other states);
➢ the need for privacy (Wills are filed at death and become pseudo-public documents) or the wish that their at-death disposition not be public; and
➢ impending disability (at the disability of the individual, the alternate trustee will be able to take control of the assets in the trust).
Feel free to call or email me if you have further questions regarding the differences between these two types of plans.
Colorado Advance Directives and Do Not Resuscitate Orders FAQs
Medical Power of Attorneys, Living Wills, DNRs, CPR Directives. Many clients want to make sure their medical choices are adhered to if they are unable to speak for themselves. To help them understand the basics - what are these documents and what do they do - I have written a brief summary, below. I strongly recommend that all of my clients, friends, and family have these documents completed so that their choices are honored about the care and control of their health care treatment if they cannot speak for themselves. This also avoids the terrible and onerous burden of having their close family members or friends have to go to court to obtain an order allowing them access to the care and treatment of their loved ones, should something happen, if these documents are not complete.
What is an advance directive?
An advance directive tells your doctor what kind of care you would like to have if you become unable to make medical decisions (for example, if you are in a coma). If you are admitted to the hospital, the hospital staff will probably talk to you about advance directives. If you are not hospitalized these documents are still important to have on hand.
A good advance directive describes the kind of treatment you would want depending on how sick you are. For example, the directives would describe what kind of care you want if you have an terminal condition or illness that you are unlikely to recover from, or if you are permanently unconscious. Advance directives usually tell your doctor that you don’t want certain kinds of treatment. However, they can also say that you want a certain treatment no matter how ill you are.
Colorado’s advanced directives are called Medical Powers of Attorney. The signer is making statements in advance about his or her preferences for medical care should he or she be unable to speak for themselves.
What is a medical power of attorney?
A medical power of attorney (POA) for health care states whom you have chosen to make health care decisions for you by allowing you to name an agent to step into your shoes and also allows you to express legally binding decisions about end of life choices. It usually becomes active any time you are unconscious or unable to make medical decisions. A POA is legally binding, so long as the named agent is present. If the agent is not present then the medical personnel will look to the language and wishes expressed in the living will and most likely adhere to the wishes expressed therein.
What is a living will?
A living will is another type of advance directive. It is a written, legal document that describes the kind of medical treatments or life-sustaining treatments you would want if you were seriously or terminally ill.
If your agent for medical power of attorney is not available to speak on your behalf the medical personnel will generally adhere to the wishes expressed in a living will, so long as it is properly executed per Colorado statute.
What is a do not resuscitate order?
A do not resuscitate (DNR) order is another kind of advance directive. A DNR is a request not to have cardiopulmonary resuscitation (CPR) if your heart stops or if you stop breathing. Unless given other instructions, hospital staff will try to help any patient whose heart has stopped or who has stopped breathing. You can use an advance directive form or tell your doctor that you do not want to be resuscitated. Your doctor will put the DNR order in your medical chart. You both must sign this form in advance.
A medical ID allows you to communicate your choice when you cannot speak for yourself. A DNR request is usually made by the patient via a valid form, bracelet or agent named in the medical power of attorney, and allows the medical teams taking care of them to honor and adhere to the patient’s wishes.
In Colorado, CPR and advanced cardiac life support (ACLS) will not be performed if a valid written DNR order or CPR directive form is present. In Colorado, it is typical for emergency medical services personnel who are presented with a valid DNR form, signed by your doctor, or who identify a standard DNR bracelet on you, to comply with the DNR order.
Advanced Directives are an important part of your life planning necessities.
What is a CPR Directive
A CPR directive is similar to a DNR order. The Colorado CPR directive must be signed by both the individual and his/her physician. CPR directives must be immediately visible to emergency personnel. At home, the best locations are right by the front door, on the refrigerator, or by the bedside of a home-bound individual.
For more active clients with strong feelings about CPR directives, I recommend a special no-CPR bracelet or necklace that can be purchased from the Award and Sign Connection or MedicAlert Foundation.
Should you complete your advance directives?
By completing your advance directives, you are making your preferences about your medical care known before its too late. This will spare your loved ones the stress of trying to make decisions about your care and you receiving care against your wishes or beliefs. Any person 18 years of age or older can and should prepare their advance directives. Parents who send their children off to college should make sure the kids have medical POAs completed, so that should something happen they can make medical decisions for their children without having to get a court order for guardianship or conservatorship – same with adults with elderly parents, spouses, and single people.
Talking to adult children about your estate plan
If you’ve done your estate planning and have adult children (single, married, divorced, with or without children), its important to let them know that you have taken care of this. It would be courteous to let your children know: Where your documents are located, both copies and originals.
Whom you have chosen as your fiduciaries, such as agents for powers of attorney, personal representative, and trustees.
It would also be helpful if you can convey to them your wishes should you become disabled.
You may wish to discuss the nuts and bolts of your plan in more detail with them, this is a personal matter, and you may decide to not disclose this at all.
However, it might be wise to discuss any areas that might cause conflict in the family up front and address this with the parties now to avoid future contention. If there are any anomalies in your estate plan, such as leaving money to a more distant relative or choosing to favor one beneficiary over others, it’s a good idea to talk about this – that way there will be no hurt feelings or surprises when the estate plan is implemented and you are unable to explain your reasons for the choices you have made.
Talking to elderly parents about estate planning
How to talk to your parents about their estate planning. Its an old adage and maybe even a cliche - we don't talk about whats in the Will and its not polite to bring up aging or death with our elderly loved ones. Yet it is important and necessary. You need to know if they have a plan and where the documents are kept in case something happens. Here are some guidelines to help navigate this awkward conversation with your parent or parents.
- Your intention. Make it clear that your intention in bringing this topic up is to understand their wishes so you can help make sure that they are carried out. If they don’t have a plan it is to encourage them to contact a professional who can help them implement one – tout suite.
- Their privacy. Your focus in this conversation is not to provide them with advice or haggle over the details of their arrangements, but to make sure that they have a plan and that you are able to locate it should something happen.
- Concerns that need to be addressed. This conversation is about them. Are they happy with the arrangements that they’ve made; is there potential for conflict amongst their chosen beneficiaries and if so how can this be averted; are they comfortable with the fiduciaries that they’ve chosen or does this need to be updated. If they don't have a plan why not, what are their fears or reasons for procrastinating and how can you and your siblings help.
- Include your own circumstances if applicable. If you are in a position where receiving money in trust is important or might be important in the future, convey this or other particular concerns to your parents.
- If you have siblings keep them in the loop by letting them know you are concerned and are addressing this with your parents.
Ways to break the ice include talking about:
- Planning gone awry. Talk to them about estate planning horror stories that you have heard on the news (a little celebrity gossip can’t help but break the ice, think Georgia O'Keeffe, Steig Larsson, Thomas Kincaid, etc. ) or through your own experience (your neighbor so and so…).
- Your own planning. If you’ve done your own estate planning it might be helpful to share with them your experience and what you have decided in regards to fiduciaries, etc., as a way of both breaking the ice and so that they know what your own plan entails and who has been designated to implement it.
If there is no planning in place:
- If your parents do not have estate planning in place encourage them to seek counsel and get it done. Many clients that I work with are so pleased to finally get this out of the way and express that this is something they have been thinking about for “a long time” and their relief and boost in confidence about the state of their affairs is palpable. Gently remind them about the added expense, stress and conflict caused to family members if a person dies without estate planning. I do not recommend putting pressure on them about this - ultimately its their estate and their responsibility but at least having this conversation in a gentle way might encourage them to tackle this task.
Seniors Getting Married - Estate Planning Considerations
Seniors getting married and estate planning.
People are getting married later in life. Marriages, with one or both spouses being seniors, retired, and having grown children, have become quite common. And while its fantastic to know that love can blossom at any age and usually children and grandchildren are happy that their parents have companions to spend their later years with, these marriages require unique estate planning considerations.
Estate planning for later life marriages is complicated for a number of reasons. These "senior" marriages can directly impact the inheritance of the children and other family members on both sides. Remarriages also can affect a spouse’s right to alimony payments from a prior spouse, retirement benefits, social security benefits, health insurance, and the spousal medical care obligations. Its important for both spouses to clearly address who their assets are intended to benefit, whether it’s the new spouse, the children and families or a trust – both while the spouses are alive, upon the death of one of them, and when both die.
Other considerations that should be addressed as a part of the estate planning process should include whether long-term care insurance is needed; should income and assets be blended or kept separate; how the primary residence is treated both during life, and upon the death of one spouse, and then both spouses; is a post or prenuptial agreement necessary or advisable as part of the estate planning process; how do the parties wish to pay for future medical expenses (for example, is it advisable to deplete the assets of one spouse first).
People in later year marriages also should consider the conflicts that could arise between the spouse and children should agents named for medical and general powers of attorney need to act. The best way to avoid this is to think these conflicts through in the planning phase and coordinate the choice of fiduciaries in the documents – with the fiduciaries having a clear understanding of the spouse’s agreements to the later life marriage concerns, as delineated above.
Estate Planning For Single People
Single people without children often avoid estate planning and the challenges associated with it, because of feeling overwhelmed or unsure. This is unfortunate because its even more critical for single people to plan ahead and name their fiduciaries and beneficiaries as there is no clear cut answer for their loved ones should something happen.
The following questions should be addressed:
To whom should I leave my assets?
Do I need to consider creating a trust to manage my assets now or for my chosen beneficiaries in the future?
Who should be my personal representatives and/or trustees?
Who should be my agents for my medical and financial powers of attorney?
If you are a single person without young children, you can leave your assets to whomever you choose, including but not limited to your partners, relatives, friends or charitable organizations. In Colorado, you can also create Pet Trusts and name trustees to care for your animals. If you do not have an estate plan in place, the state will dictate who will inherit your assets. A recent case in point, the author of the Girl With the Dragon Tattoo series, Stieg Larrsen did not have an estate plan and as a result, his estranged father and brother, whom he had not spoken to for over 20 years before his death inherited his entire estate and all royalties thereof while his long-time love and assistant, whom he had lived with for 20 years was cut off, receiving nothing.
Selection of the right personal representatives and trustees is also essential to successful estate and trust administration. Who do you trust to administer your estate, especially if your relatives live far away or are unfamiliar with your affairs? In addition, health care and financial powers of attorney are very important documents to have in place since you may need these agents to make crucial medical decisions on your behalf as well as control your financial matters if you are ever unable to do so on your own because of disability.
Estate planning for a single person often demands more attention to detail than estate planning for married persons or single persons with children or grandchildren - because there is no obvious answer. A Will is usually sufficient for unmarried persons with smaller estates, but a Living Trust may be a better option for persons with larger estates (click here to read about Living Trusts). Your estate planning documents should be reviewed regularly, particularly when there have been changes in the law or in your personal situation. As a single person, it is very important that you understand how your assets are currently held and how they will pass after your death.
Bonus children (also known as stepchildren) and estate planning
I have a dear friend who refers to her stepchildren as her bonus children and I think it is a beautiful way to describe a family with children from a former relationship and so I have adopted this term here. Many clients form new relationships with bonus children-- that is, a family where one or both spouses have children from a previous relationship. Estate planning for these families can present unique challenges. It’s challenging to combine the interests of a current spouse and any mutual children with the desire to provide for one's children of a previous relationship.
Hopefully, the children of the prior relationship are an integral and loving part of the new family relationship, looked upon and treated by both spouses as if mutual children. However, there may be estate-planning issues about the bonus children and the new spouse, which could raise a number of concerns. For example, usually spouses leave their assets to each other first and then the children after both spouses are deceased. If all assets are left to the new spouse, the prior children may not be provided for, as the deceased spouse would have wished, since there is no legal obligation to support stepchildren. In addition, the surviving spouse may, at his or her death, leave all the assets to a new partner or his or her own children, to the exclusion of the children of the first spouse to die. On the other hand, if assets are left for the prior children at the death of their parent, there may not be sufficient assets remaining to provide for the current spouse or family.
Even with a harmonious family with bonus children, lack of planning may lead to unforeseen difficulties. In cases where death occurs without a will or trust, statutory intestacy rules may remove from the current marriage up to one half of the deceased spouse's estate and give it to the children from the previous marriage, even if the prior children are all grown and in less need of the assets than the spouse and minor children of the current marriage. If the prior children are minors, an ex-spouse may gain control of the assets. Finally, there just may not be enough assets available to adequately provide for the needs of all the members of the family.
Estate planning is an excellent way to create clarity in the family of bonus-children partners – with the couple agreeing to and spelling out what goes to whom - when. At a minimum, each spouse should have a Will. Otherwise, assets may eventually (upon the death of the second spouse) be distributed in a manner contrary to what the parties intended (the old third-party interloper scenario comes to mind).
A more proactive approach is to use a trust to provide for the surviving spouse, and still protect a portion of the assets for the children of a prior marriage. This type of trust is known as a Qualified Terminable Interest Property (QTIP) trust. Property passing to a QTIP trust is eligible for the marital deduction, so the property is not taxed at the death of the deceased spouse, leaving the entire amount available for the surviving spouse’s support. Such a trust can generate income for the benefit of the surviving spouse during his or her lifetime. At the death of the surviving spouse, those assets could then be distributed among the mutual and/or prior children pursuant to the wishes of the previously deceased spouse.
If the children from the previous marriage are young, after the death of the surviving spouse, the assets from the QTIP Trust can be held in a further trust for the children, under the control of an independent trustee, to ensure that the assets do not fall under the control of an ex-spouse.
It is not uncommon for a client with a much younger spouse to create benefits for the children from the prior marriage by purchasing life insurance. In such a case, rather than requiring the children to wait many years until the death of their step-parent to receive benefits, the client purchases a life insurance policy that is made payable to the children so they receive those cash benefits immediately upon the client’s death. Having the policy owned by the children (or perhaps even better, by an Insurance Trust for their benefit) and funding the purchase over time by making gifts to the children or the Trust can even provide those benefits without any transfer tax!
Other techniques are also available to balance benefits passing to a new spouse with benefits for the children of a previous relationship. Marital agreements are important planning tools, and contractual agreements to name beneficiaries or make a will are also used to ensure long term planning for bonus children when as we all know we can’t predict our futures. With careful consideration, estate planning for the blended family can provide orderly, equitable and compassionate distribution of estate assets, while also minimizing or eliminating confusion or even animosity between the bonus family, both here and now; and upon the death of a spouse in relation to the surviving beneficiaries.
If you have questions about these estate planning tools give me a call or shoot me an email or if you have a friend with bonus children please share!
Five Criteria to help choose a Medical Power of Attorney
In completing your POAs its important to choose an appropriate agent. Here are five criteria to think about in relation to choosing an agent for your medical power of attorney.
1. Personal belief: Since the concept of withholding artificial-life support runs contrary to the teachings of some religions and is a very personal decision, it is helpful to find a healthcare agent who understands your feelings in this regard and whose own beliefs are not completely contrary to your own.
2. Communication: It is important to choose someone you are comfortable speaking with about your health care wishes and it should be clear to you that not only do they understand them but they will be able to communicate these to your health care providers and family members if necessary.
3. Practical reality: Its critical that the person you choose is willing to accept responsibility and agree to act as your agent - "ready and able to serve".
4. Voice: In choosing an agent be sure that they will be able to speak up and stand firm on your behalf - even if faced with physicians who are advising otherwise or other close family members who disagree.
5. Availability: Make sure this person is likely to be accessible and capable of serving as your agent well into the future.
How to choose a guardian for your children - 10 tips to help make this decision
Naming Guardians For Your Children: 10 Criteria to Help Clarify This Most Important Decision
1. Relatives: In considering such an important decision - look beyond the most obvious choices. Make a list of all the people you know who you would trust to take care of your children. You don't need to limit your list to close family members. While siblings and parents can be excellent choices, consider also extended family members who are old enough to raise your children - cousins, aunts, uncles, nieces, and nephews.
2. Friends: can make excellent guardians as well -so to the above list, consider adding close friends, the parents of your children's friends (who most likely have quickly become your friends, as well), even teachers or child care providers with whom you and your children have a special relationship.
3. Financials: Don't overemphasize the size of someone's home. Don't eliminate anyone from consideration because you don't think they have the finances to take care of your children. You should be able to take care of the expenses associated with raising your children through appropriate life insurance. In fact, if necessary, you can instruct your trustee to provide funds for your chosen guardian to build an addition to their home or move to a larger home to accommodate your children.
4. Nurturing Environment: Ask yourself who will provide the most loving, nurturing, supportive environment for your kids. Consider who on your list would truly love your children if appointed their guardian. If they have children of their own, how will your children fit in with family? Who do you see your child with - day in and day out - back and forth to school, summer holidays, sports events, doctors appointments, hugs, etc.
5. Values. Ask yourself who on your list most closely shares your values with respect to your religious beliefs, moral values, child-rearing philosophy, educational values, and social values.
6. Practical considerations. How would raising children fit into their lifestyle?
--If someone you are considering is older, do they have the necessary health and energy?
--Do they have other children? How would your children get along with theirs? How close do they live to other important people in your children's lives.
--If a couple divorced, or one person died, would you be comfortable with either of them acting as the sole guardian? If not, you need to specify what you would want to happen.
7. There is no such thing as "perfect." Most likely, no one on your list will seem perfect, but if you truly consider what matters to you most, you will make the right choice. Trust your instincts. If one couple or person meets all of your criteria, but doesn't feel right, don't choose them. By the same token, if someone feels much more right than any of the others on your list, there's a good reason for it. Make your primary choice and a secondary choice. It's essential that both you and your spouse agree.
8. Consider selecting a temporary as well as a permanent guardian. Temporary guardians may be appointed if both parents become temporarily unable to care for their children - for example, as the result of a car accident. Depending on your choice for permanent guardians, you may want to designate different people to act as temporary guardians. If your choice for a permanent guardian lives a considerable distance away, choose someone close by to serve as temporary guardian. If you're temporarily disabled, you'll want your children close by. And you won't want their lives unnecessarily disrupted by moving them to a new town and school. If you have no relatives or close friends nearby, consider families of your children's friends.
9. Talk with everyone involved. If your children are old enough, talk with them to get their input as well. And be sure to confer with the people you'd like to choose, to ensure they're willing to be chosen and would feel comfortable acting as guardians.
10. Follow through. Once you've made your choice, there are steps you can take to make sure the potential guardians you've chosen will have the guidance and support they need.
--Create a set of guidelines to convey information about your children, your parenting values and your expectations for your children.
--Make sure your estate planning is complete and that you will have the funds to provide for your children's care in trust. This also enables you to set out the terms of the trust in advance (at what ages money should be distributed and for what expenses).
--Keep your guardian choice up to date - if something changes in regards to your choices - make sure your documents are updated.
I hope this information helps clarify this most important decision. The most important thing to remember really is that if you don't make this decision - someone else may end up trying to decide this for your children - for you.
What does a will actually do?
Your will is a legal document in which you give certain instructions to be carried out after your death. For example, you may direct the distribution of your assets (your money and property), and give your choice of guardians for your children. It becomes irrevocable when you die. In your will, you can name:Your beneficiaries. You may name beneficiaries (family members, friends, spouse, domestic partner or charitable organizations, for example) to receive your assets according to the instructions in your will. You may list specific gifts, such as jewelry or a certain sum of money, to certain beneficiaries, and you should direct what should be done with all remaining assets (any assets that your will does not dispose of by specific gift). A guardian and trustee for your minor children. You may nominate a person to be responsible for your child’s personal care if you and your spouse die before the child turns 18. You may also name a trustee—who may or may not be the same person—to be responsible for managing any assets given to the child, until he or she is 18 years old. A personal representative. You may nominate a person or institution to collect and manage your assets, pay any debts, expenses and taxes that might be due, and then distribute your assets to your beneficiaries according to the instructions in your will. Your personal representative serves a very important role and has significant responsibilities. It can be a time-consuming job. You should choose your personal representative carefully. Asset protection/tax planning. A properly designed estate plan will, at a minimum: (i) protect your assets, your person, and your business from a possible future disability; (ii) protect your assets from liability during and after your life; (iii) distribute your assets tax efficiently at your death; and (iv) ensure that assets left to young beneficiaries are left inside of a structure such as a trust that will provide management and protection of these assets for your beneficiaries.
Why do I need a will?
Wills are important. Regardless of how much or how little money you have, a will ensures that whatever personal property and assets you do have will go to family or beneficiaries you designate. Without a will, the court makes these decisions.If you have children, a will is essential, to ensure that your wishes regarding your children will be clear. In your will, you will be able to designate a guardian for your children who will be responsible to care for your children should something happen to you. In addition to naming your children’s guardian, by completing a will, you will also be able to name a trustee who will be responsible for taking care of your financial resources for your children until they are adults. There are other benefits to having a will, and depending on the size of your estate careful planning can reap significant tax benefits. You will also avoid subjecting your family and loved ones to confusion and anxiety at what is already a difficult time by making your wishes clear.
© Tanya Shimer. All rights reserved.