There are important estate planning issues to consider when you’re going through a divorce. And, when there are children involved (either minor or adult children), there are even more factors to be considered.
“For a number of compelling reasons, providing outright inheritances for children is typically not a very good idea, no matter what their age.” New Jersey colleagues at Weinbrger Divorce & Family Law Group explain some of the reasons why setting up a trust is a better idea::
- With a trust, your ex-spouse will not have access to the assets except under the terms you specify.
- Minor children will not have unlimited access to the assets the day they reach majority.
- Creditors of your children will not be able to seize the assets.
- Divorcing spouses of your child will have no access to the assets.
- If still minors when you pass,the children will not be able to legally inherit the assets, and your ex or other guardian will need to be named.
“Divorce has a way of outdating even the best of estate planning documents, ” we noted in this Geyer Law blog back in February, cautioning that, by definition, “divorce is a signal that special – and immediate – attention be paid to making changes to each spouse’s estate planning documents.” Whether there are children or not, your power of attorney documents need to be rewritten. You don’t want an ex-spouse to be the one making making financial or medical decisions on your behalf if you’re unable to do so.
Tax law has a way of making estate planning updates imperative as well. IRA accounts need to be divided using a process called “transfer incident to divorce”; 403(b) and 401(k) plans will be split under an agreement called a QDRO. Those tax-free transactions need to be reported correctly to the custodians and to the court, and beneficiary changes need to be made.
Silicon Valley-based legal podcast host Liza Hanks reminds listeners that in naming a living trust as beneficiary of a retirement account, it is crucial to state that the trust comply with the Secure Act with regard to withdrawals since after the age of majority, children inheriting retirement assets, with limited exceptions, must withdraw all the money from the retirement plan within 10 tax years. Writing in Forbes, Christine Fletcher offers yet another reminder: many divorce agreements specify obligations to maintain life insurance; that obligation is too often ignored.
At Rebecca W. Geyer and Associates, we hope for the best and at the same time try to anticipate problems before they happen. If a couple is planning to marry and this is a second marriage, we often help prepare a prenuptial agreement, in order to protect children’s inheritances.
– by Rebecca W Geyer