Archive for August, 2012
DIVORCE AND BENEFICIARY-DESIGNATED ASSETS: PART TWO
This is the second part of a newsletter addressing a recent change in Florida law regarding divorce and beneficiary-designated assets such as life insurance, retirement plans, pay-on-death accounts and annuities. As of July 1, 2012, a new Florida statute
avoids the distribution of this type of asset to an ex-spouse beneficiary by pretending that the ex-spouse died before the owner. Part One of this newsletter explained when this new law starts protecting assets and who receives the assets instead of the
ex-spouse. This part provides some additional considerations for those who might be affected by the new statute.
A significant fact about the new divorce law is that it does not protect all beneficiary-designated assets. The statute specifically applies to life insurance policies, annuities, employee benefit plans, IRAs, and pay-on-death accounts. However, it will not affect either joint accounts with rights of survivorship or any policy or contract that is not governed by Florida law. Additionally, the new law will not write the ex-spouse out as beneficiary if a court order required the owner to maintain the asset for the benefit of the ex-spouse or children of the marriage, or if the beneficiary designation was irrevocable under the terms of the divorce or otherwise. Thus, relying on this law to “automatically” protect you could prove dangerous.
This is highlighted by the fact that, even when the new statute does apply, it will be difficult to enforce. The law gives substantial protection to the institutions that will be responsible for paying out the beneficiary-designated assets (the “payors”). Specifically, a payor is not liable for distributing an asset to the ex-spouse where the beneficiary designation does not specify the relationship between the ex-spouse and the owner or if it states that the ex-spouse is not married to the owner. A payor is also entitled to rely on the marital status and spouse of the owner stated on a death certificate, even though that information is not verified by the funeral homes that usually submit it. Shockingly, this immunity applies even when the payor knows that the person the asset is transferred to is different than the person who should own it according to the new divorce law. This means that once the benefits are paid out, it becomes much more difficult to redirect them to the correct beneficiary.
Again, we recommend that you re-evaluate your estate and financial planning as soon as you decide to get a divorce or annulment. Your estate planning attorney, insurance agent, and financial advisor should be able to help you take action so that the law will work for you rather than against you.
DIVORCE AND BENEFICIARY-DESIGNATED ASSETS: PART ONE
Our clients and friends often ask us what would happen to their estate plan if they got divorced. For years, the answer in Florida has been that the law will write your ex-spouse out of your will or trust by pretending that the ex-spouse is deceased. But, until now, the law did not provide any help for life insurance policies and other assets that still named the “ex” as beneficiary. As of July 1, 2012, a new Florida statute now also treats the ex-spouse as deceased for beneficiary-designated assets such as life insurance, retirement plans, pay-on-death accounts and annuities.
At first glance, this new statute looks like a perfect solution to fill an important gap in estate planning and divorce law. However, there are some significant points that must be taken into consideration by anyone who might be affected by this law in the future.
First, like the law providing for the disinheritance of ex-spouses from wills and trusts, the new statute will only remove the ex-spouse as a beneficiary after the marriage has been judicially dissolved (i.e. final divorce order) or declared invalid by court order (i.e. annulment). So if something happens to you while you are going through a divorce, the law will not prevent your soon-to-be ex-spouse from getting all of the insurance, retirement accounts, etc. for which you had listed him or her as the beneficiary.
Second, the new law makes naming secondary beneficiaries more important than ever. As mentioned above, if you pass away leaving your ex-spouse as the primary beneficiary of an asset, the law will treat the ex-spouse as deceased. This means that your secondary beneficiary will receive the asset instead. However, if you have not named additional beneficiaries, the asset will likely pass to your estate, which can significantly increase the cost of probating your estate.
We recommend that you re-evaluate your estate and financial planning as soon as you decide to get a divorce or annulment. Your estate planning attorney and insurance and financial advisors should be able to help you take action so that the law will work for you rather than against you. More information on the new beneficiary-designated asset law will follow in Part 2 of this newsletter.
PLANNING FOR SPECIAL ITEMS IS ESSENTIAL PART TWO – COLLECTIBLES
Last week, we wrote about a unique automobile that sparked a legal battle and ultimately fell into the wrong hands due to a lack of planning. We encouraged everyone who owns any kind of special item to plan now to avoid expense and stress later. This is especially true for collectible items, such as art, coins, stamps, antiques, etc.
Early planning for collections is crucial due to tax and valuation issues. When a collector passes away, the IRS wants to know how much his estate is worth, including collectibles. Although it can be difficult to determine the value of a collection, it is an important consideration for both lifetime and estate planning. If you have a good idea of what the IRS thinks your collectibles are worth, your estate planning attorney will be better able to advise you on estate and gift tax considerations. Depending on your situation, you may need to consider gifting or selling your collection during your lifetime.
Of course, many collectibles hold sentimental value for their owners, making tax and market value concerns secondary to the desire to keep the collection in the family or intact. When this is the case, timely planning is again the best solution. As a first step, we recommend evaluating your family’s appreciation of your collection and their willingness to maintain it. As with all other aspects of planning, knowing your family and sharing that knowledge with your lawyer will help you get the best plan possible.
PLANNING FOR SPECIAL ITEMS IS ESSENTIAL
We recently came across a case where a man owned an automobile that had a high value both sentimentally and monetarily. However, like many clients we have seen over the years, he put off estate planning until he was on his death bed and then did only a simple will. Shortly after the man’s death, his estranged son showed up with the title to the automobile dated one day before the man’s death and with an obviously forged signature. After a long civil and criminal court battle and thousands of dollars of attorneys’ fees later, the second wife gave up and let the estranged son keep the automobile.
Even though most of us don’t own historically significant automobiles, you probably do own at least one item that holds special meaning for you. It may be a piece of jewelry that your grandfather bought your grandmother, an antique clock that has been in your family for centuries, or even a beanie baby collection. Whether your special item is worth thousands of dollars or has only sentimental value, it is essential to plan so that it will end up in the right hands.
The result in the automobile case is almost certainly not what the man would have wanted to happen to his prized possession. And it would have been easy to avoid the stress and expense endured by his wife with proper estate planning. We say it often but it is worth repeating: executing and maintaining an estate plan during your lifetime almost always costs less than doing nothing.