Docstoc

Impact of Divorce on Estate Planning Login

Document Sample
Impact of Divorce on Estate Planning Login Powered By Docstoc
					    Effect of
  Divorce or
Remarriage
 on Existing
Estate Plans
About your presenter:
  Ronald   C. Morton
    Mississippi   College, B.S. 1988;
     J.D. 1992
    University of Alabama, LL. M.
    Certified Elder Law Attorney
    Memberships
      American Academy   of Estate Planning
       Attorneys
      WealthCounsel
      National Academy of Elder Law Attorneys
      ElderCounsel
Why You Need to Understand
     Estate Planning?
  Many   of Your Clients have
   Estate Plans
  Divorce Will Probably
   Impact Those Plans
  If you Do Not Factor In
   Those Plans It Will Probably
   Cost Your Client Money
  Your Client Will Look For
   Someone to Blame
      Overview of Covered
           Materials
 Wills,Trusts & Spousal Elections
 Basics of A/B Trust Planning
 IRA’s & Qualified Plans
 Deferred Compensation
Overview of Estate
        Planning
  What is an Estate?

          of value that
 Everything
 you own makes up an
 estate.
   Cash
   Accounts
   Vehicles
    But Don’t Forget…

 Life Insurance
   Full face value of policy

 Retirement Assets
   401k,   IRA
    Choice of Beneficiaries
 Intestacy:
   Restricted   beneficiaries
 Wills:
   Name   anyone as beneficiary:
      Spouse,  Children, Relatives
      Friends, Strangers
      Charities
 Spouse Restrictions on Wills
 Rights    of surviving spouse:
   Difficult
            to disinherit the Spouse
   Can “elect against the will”
      Setoff   to extent separate estate exceeds
      20%
   Right to One Year’s Support
   Right to Home until death or
    remarriage
 Spouse     may consent to the will:
   Reduces      risk of challenge
Can Trust Disinherit Spouse?
Basics of Trust Based
      Planning
Think of the Trust as a Box

          Holds title to assets
   3 Rolls in Every Trust …
 Grantors
  Create   Trust and transfer their assets
 Trustees
  Manage   Trust assets
   but can’t spend them
   on themselves
 Beneficiaries
  All Trust assets are
   for their benefit
  2 Primary Types of Trusts

 Revocable
   Canbe amended, restated or
   revoked by grantor
 Irrevocable
   Cannot   be changed by grantor
        2 Types of Trusts

 Revocable   Trusts
   Grantoris “Owner” for purposes of
   Division of Property in Divorce
 Irrevocable   Trusts
              is “Owner” for
   Beneficiary
   purposes of Division of Property in
   Divorce
            Trust Grantors

 1st   Party Trusts
   TrustCreated by the Grantor for his
    own benefit
 3rd   Party Trusts
   Trusts created by Grantor for the
    benefit of others
            1 st Party Trusts


 Not   Protected from Creditors
   Miss.   Code Ann. 91-9-509
 Comparewith Laws in Allowing
 Domestic Asset Protection Trusts
   TN,   NV, AK, DE & SD
     Irrevocable
     Trustee Discretion
     Trustee Resident in Situs State

 Pre-Marital   Strategy ?
         3 rd Party Trusts


 Established    by 3rd Party
   Frequently   Parents
 Discretionary    Distributions
   Frequently Designed with Child as
    Management Trustee
   Appoint Distribution Trustee with
    Sole Discretion over Distributions
 Provides Asset    Protection During
 Marriage
Can Trust Disinherit Spouse?

 Unanswered   Question in
 Mississippi
  Presumption   would be yes, since
   statutes are strictly construed
  But Strong Public Policy
   Against Impoverishing Spouse
      Other Estate Issues

           Right
 Children’s
 Guardianship Appointment
      Restrictions on Wills

 Rights   of children:
   Pretermitted  heirs
   Intestate rights
   No Forced Heirship Rights in
    Mississippi
        Guardianships

 No Statutory Right to Name
  Guardian of Minor Child
 Courts Will Give Strong
  Deference To Wishes of Parent
 Strong Presumption in Favor of
  Natural Parent
Taxation of
   Estates
      4 Gifts in Tax Code

 Stepped   Up Basis for Inherited
  Property
 Continued Income-Tax Deferral
  for Inherited IRA’s
 Income-Tax Free Treatment of
  Life Insurance Proceeds
 Unlimited Spousal Deduction
Distinction Between Probate
   Estate & Taxable Estate
 Probate   Estate = All Titled
 Assets

 TaxableEstate = Probate
 Estate + Contract, Beneficiary,
 & POD Assets
… and the Federal Estate Tax Is

          41% to 55%
      Exclusion      Year
      $1,000,000     2002-2003
      $1,500,000     2004-2005
      $2,000,000     2006-2008
      $3,500,000     2009
      Repealed       2010
      $1,000,000     2011
  Common Plan to Minimize
  Taxes for Married Couples
 A/B   Trust
    A/B Trust Tax Planning - $2M Estate
                                                  Checking account
                                                     Life insurance

Both Spouses are the Co-                                       IRA
Grantors and Co-Trustees
                              First Death

  (Revocable)                   INCOME               (Irrevocable)
      "A"                                                 "B"
   $1,000,000              PRINCIPAL for HMSE          $1,000,000

                       PRINCIPAL 5% or $5,000
Mary is sole Trustee
and sole Beneficiary
                             Second Death

            Children                            Children
A/B Trust




Above ground
               Below ground
What About Unequal Estates?

 Funding of “B” Trust is Limited
 to Assets Owned by Decedent
    Estate Equalization

Danger!!
 Alternatives to Equalization

         QTIP Trust
 Lifetime
 Testamentary Power of
  Appointment Trust
   PLR   200101021
   Divorce Eliminates A/B
         Planning
 ExSpouse’s Estate < Exclusion =
 No Planning Needed

   Spouse’s Estate > Exclusion =
 Ex
 New Planning Required
   Alternative Tax Planning

 Irrevocable   Life Insurance Trust
 QPRT
 GRAT
 Sale   to IDGT
 FLP
 FLLP
Division of
       Tax
 Deferred
    Assets
 Qualified and Non Qualified
            Plans
 ERISA
   Complete   Preemption of State Law
 Non-ERISA
   State   Law Governs
 ERISA Plan Rights of Spouse

 Right to Be Named Beneficiary
 Alternate Beneficiary Requires
  Waiver of “Spouse”
 Pre-Marital Agreement Not
  Binding
 Post-Marital Agreement Not
  Binding on Plan Administrator
   “Plan   Documents” Rule
  2 Types of Qualified Plans

 Defined   Benefit
   Pension

 Defined   Contribution
   401k
  Division of Qualified Plan
           Assets
 QDRO   Required
 Distribution Without QDRO
  Taxable to Account Owner
Requirements for Valid QDRO

 Child Support, Alimony, or
  Marital Property Rights
 Create or Recognize Right of
  Alternate Payee
 Must Specify:
   name,address, amount or
   percentage, number of payments,
   each plan affected
         Impact of QDRO

 Alternate Payee is Taxed on
  Distribution
 10% Penalty is Waived
 Alternatively, can Rollover into
  own IRA if Spouse or former
  Spouse
       Impact of No QDRO

 ExSpouse gets account money
 Account Owner gets Taxed
       Non-ERISA Accounts

 No   QDRO Required
   Individual Retirement Account (IRA)
   Simplified Employee Plan (SEP)

 Spousal Consent Not Required to
  Name Alternate Beneficiary
 Only need letter of instruction
 Some Plans Will Not Accept
          QDRO
 State Retirement
 Religious Retirement Plans
  (“church plans”)
 Strategies for Dividing Tax
 Deferred Assets in Divorce
 QDRO
   Rollover into IRA
   Stretch Tax Deferred Growth
   Convert to Roth IRA

 Other   Property
   Discount for Present Value
   Watch for Unrecognized Gain in
    Other Property
   Sell House while Married if Equity >
  Strategies for Dividing Tax
  Deferred Assets in Divorce
 Life   Insurance
   Tax  Free Benefit vs Tax Deferred
   Single Pay Premium
   Gift Premium While Still Married
          QDRO Traps

 Date  of Valuation & Division
 Responsible Party for Drafting
 Responsibility for Outstanding
  Loans
 Alternate Plan Spelled Out in
  Settlement Agreement
 Stay away from generalities
  “retirement plan.”
              QDRO Traps

 Adjust  for Earnings and Losses?
 Amount rather than %?
 “Surviving Spouse” Designation
  if Death Before & After
  Retirement?
   Defined   Benefit Plan
     Qualified   Pre Retirement Survivor
     Annuity
   Defined   Contribution Plan
          QDRO Traps

 Who is Drafting the QDRO?
 Who will Pay for the QDRO?
      Non Qualified Deferred
         Compensation
   Compensation for Highly
    Compensated Individuals
     Rabbi  Trusts
     Vesting Trusts
     Life Insurance

 Law Limits Withdrawals from these
  plans
 Divorce is not a stated exception.
 Interim guidance indicates that
  divorce is beyond employee’s control.
Charitable Remainder Trusts

 Canbe divided between Spouses
 as part of a divorce decree.
   PLR   200823015; 200824002
 Division not taxable event
 But acceleration upon death of
  first spouse is not compensated
  by increase in charitable
  deduction.
Questions
132 Fairmont St., Suite A
Clinton, MS 39056
Phone: 601-925-9797
Fax: 601-925-9774
www.mortonelderlaw.com

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:9
posted:10/22/2012
language:English
pages:53