Divorce | Begin the Begin

Changes to Maryland Laws Impacting Estate Planning and Elder Law

September 15, 2016

courthouse On October 1st (unless otherwise noted) a number of new laws will take effect in Maryland that may have an impact on you or those with whom you work. Below is a summary of a few key pieces of legislation of which you should be aware.

HB 507 – Maryland Fiduciary Access to Digital Assets Act: This Act authorizes a person with digital assets to direct the disclosure of information relating to those assets in certain circumstances. A previous Article provides the details.

HB 541 – Upon divorce or annulment, certain provisions of a revocable trust that relate to the spouse will be revoked. This new statute is comparable to what has been established for wills under Section 4-105(4) of the Estates and Trust Article of the Annotated Code of Maryland.

HB 887 – Section 14.5-303 of the Estates and Trusts Article of the Annotated Code of Maryland is amended to add a new subsection (7) allowing for virtual representation of a minor, incapacitated, unborn or unknown individual, by a grandparent or more remote ancestor, provided there is no conflict of interest. In addition, Section 14.5-304 is added to the Estates and Trusts Article permitting anyone to represent a minor, incapacitated, unborn or unknown individual, provided there is a ‘substantially identical interest’ and no conflict of interest exists. The purpose is to avoid having to appoint a guardian ad litem in a court proceeding involving trusts.

HB 888 – The new statute will allow trustees and beneficiaries to enter into a binding settlement agreement relating to the administration of a trust without having to involve the court. The actions that can be agreed upon within a non-judicial settlement agreement by the trustees and beneficiaries must be those that a court could have approved. For example, a non-judicial settlement agreement could address interpretation or construction of terms of the trust, approval of an accounting or trustee succession.

HB 431 – Requires the establishment of the Maryland ABLE Program to allow for savings accounts similar to 529 Plan accounts to be created for a person under a disability. This was effective as of July 1, 2016. Two previous articles discussed the ABLE Program.

HB 718 – Asset Recovery for Exploited Seniors Act: Allows for a civil action to be brought for damages against a person who knowingly and willfully takes from another, who is at least 68 years old, his or her assets. A criminal conviction is not necessary before bringing the civil action.

HB 1385 – If an individual does not have a health care directive, ‘any authentic expression’ made by such person, who is deemed to be competent, regarding his or her wishes and desires about their health care ‘shall be considered.’

#elderlaw #estateplanning #healthcare #Marylandlaw #incapacityplanning #specialneeds #digitalassets @bgnthebgn

The Marriage of Divorce and Estate Planning

August 11, 2016

In case you missed the series about the impact of divorce on estate planning, here is a brief recap of some points to consider.

1. The Property Settlement Agreement may require that you maintain life insurance for any minor children. If that is the case, then have you revisited your estate plan recently? What obligations to maintain life insurance do you have? Does the Property Settlement Agreement have certain requirements for the creation of a trust, and if so, what are those requirements? Have the requirements of the Property Settlement Agreement been fulfilled or incorporated through your estate plan? Are there any provisions of the Property Settlement Agreement that will survive death?

2. When was the last time you updated your beneficiary designations on qualified retirement accounts (e.g., 401(k) or IRA accounts), annuities, life insurance or payable on death or transfer of death designations on bank or brokerage accounts?

3. What should happen to your real and personal property? Are there steps you need to take to ensure your real and personal property are distributed to the individuals or entities you want to have benefit?

4. If you are divorcing and have a disabled child, how is that child being provided for upon the incapacity or death of a parent? Is eligibility for public benefits preserved through a properly structured special or supplemental needs trust? Who has authority to make healthcare decisions for the child and in what manner? Has guardianship been determined and the terms in which parents plan to share guardianship specified, if applicable?

5. What happens if an estate plan already exists and you do nothing to update it?

#estateplanning #divorce @bgnthebgn

How Divorce Can Impact Your Estate Plan – Failure to Update an Existing Plan

June 16, 2016

Now that we have addressed property settlement agreements, beneficiary designations, real and personal property and special needs, what happens if an estate plan already exists and you do nothing to update it? Presumably, the existing plan was prepared during the marriage and has the former spouse in fiduciary positions and named as a beneficiary. The entire plan should be updated to reflect new trustees, personal representatives/executors, financial powers of attorney and healthcare agents. But often, recently divorced individuals simply do not have the inclination to handle one more legal matter (particularly if the divorce was not amicable).

Virginia law has a savings clause that may apply. Under Virginia law, if a person creates a last will and testament while married, divorces and subsequently dies without updating his or her last will and testament, the divorce “revokes any disposition or appointment of property made by the will to the former spouse.” Va. Code §64.2-412. In addition, any appointment of the former spouse as a fiduciary under the will, including as executor, trustee, conservator or guardian, is revoked. However, this law does not change any financial power of attorney or healthcare power of attorney under which the former spouse may be named. Furthermore, the law does address provisions contained in a trust agreement. Therefore, a former spouse may have authority to act or be treated as a beneficiary unless changes are made or other state statutes apply.

Moreover, if there is an irrevocable trust or “spousal lifetime access trust” (SLAT) that benefits a spouse, then there may continue to be income tax consequences to the creator of that irrevocable trust even though the parties divorce. The regulatory and legislative history surrounding the applicable tax code sections (Sections 71, 672, 677 and 682) is not as clear as it should be, in certain circumstances, as to whether a grantor (or creator of the trust) will still be held liable for the income tax associated with the irrevocable trust that otherwise benefits an ex-spouse. Therefore, the trust agreement and relevant tax law need to be reviewed and a determination made regarding any ongoing tax liability.

Overall, taking into account all of the considerations described throughout this series, it is clear that after a divorce (and perhaps even during a divorce), it is imperative that you begin the process of updating your estate plan to avoid the potential of having a former spouse in a position of authority during incapacity or upon death and to avoid a former spouse unintentionally benefiting from your demise. #beginthebegin #divorce #estateplanning #updateyourestateplan @bgnthebgn

How Divorce Can Impact Your Estate Plan – Special Needs

June 9, 2016

As we continue to explore the impact of divorce on an estate plan, another issue that arises is the care and support of children, particularly children with disabilities. Presumably, the property settlement agreement will handle ongoing financial support and initial custody, but what happens during the incapacity or upon the death of a parent? An earlier article discussed the benefits of planning for any life insurance requirements under the property settlement agreement. But in addition to a general plan for life insurance, it may be necessary to designate the life insurance to a special or supplemental needs trust to allow the disabled child to qualify for public benefits. The special or supplemental needs trust can be created within one’s personal estate plan (e.g., a subtrust under a Last Will and Testament or revocable living trust) or as a standalone trust created prior to incapacity or death. Setting the proceeds of the life insurance aside in such a trust will help protect those proceeds for the disabled child’s benefit, protect those proceeds from the child’s potential creditors and allow for flexibility in public benefits planning.

And what if the child is receiving public benefits like Social Security Income (SSI), is on Medicaid or receives a Medicaid Waiver and child support is awarded? In that situation it is prudent to consider the creation of a self-settled or (d)(4)(A) special or supplemental needs trust to receive the child support payments. Such self-settled trusts have very particular required provisions in order for the disabled child to maintain eligibility for public benefits, but will avoid reduction or elimination of the available benefits if properly structured and implemented. This is an issue that should be addressed during negotiations and to include in the property settlement agreement, and therefore, not to figure out after the divorce is final.

As for the guardianship/custody of the disabled child, how will that be handled? If the child is a minor, then the parents will hopefully reach an agreement as to co-parenting and incorporate that agreement in the property settlement agreement (or as determined by the court if agreement cannot be reached). For an adult child who is disabled, a guardianship proceeding to establish that the child is disabled and to appoint a guardian must be commenced. The resulting court order will address the parents’ authority to act jointly or separately, after making reasonable efforts to contact each other, regarding the child’s medical care and housing, including (a) emergency medical treatment, (b) non-emergency hospitalizations, (e) personal care appointments, (f) immunizations, (g) routine dental and vision appointments, (h) admission to a facility, and (i) developmental assessments, among other things. Furthermore, the court order will address what happens if a parent cannot continue acting as guardian due to incapacity or death. Ultimately, guardianship of a child with disabilities ends up being less about which parent has the child on a particular holiday (also important) and more about the type and quality of care the child will need and how that care will be provided.

So consider the following: (1) If you are divorcing and have a disabled child, how is that child being provided for upon the incapacity or death of a parent? (2) Is eligibility for public benefits preserved through a properly structured special or supplemental needs trusts? (3) Who has authority to make healthcare decisions for the child and in what manner? #divorce #specialneeds #estateplanning #specialneedstrust

How Divorce Can Impact Your Estate Plan – Real Estate and Personal Property

June 2, 2016

After addressing property settlement agreements and beneficiary designations, this next article in the series on divorce and estate planning discusses real estate and personal property.

Married couples tend to own real estate together, whether as a primary residence, a vacation home or an investment property, and may have purchased a variety of personal property together, such as artwork, furnishings and the like. Upon divorce, Virginia law dictates that all rights in real and personal property, “including the right of survivorship in real or personal property title to which is vested in the parties as joint tenants or as tenants by the entirety, with survivorship as at common law, shall be extinguished. . .” Va. Code §20-111. Thus, by operation of law, the ownership of real and personal property is converted to ownership as tenants in common.

Now depending on the property settlement agreement, each party will generally own fifty percent of the real and/or personal property. In order to ensure that the real and/or personal property is used for an individual’s benefit during incapacity and distributed to his or her beneficiaries upon death, a person should consider transferring such real and personal property to a revocable living trust (the benefits of which I have discussed in earlier posts).

Alternatively, for the real property, Virginia has the Uniform Real Property Transfer on Death Act, which allows a person to essentially designate a beneficiary for his or her real property by way of a transfer on death deed. This deed is revocable, provided certain formalities under the statutes are followed, but allows for you to be on record to the public as to who or what entity should receive the real property. Although it is a revocable designation, it is not that straightforward to change, particularly if you decide to do so multiple times, which may create issues if death occurs in the midst of a change. Thus, a transfer on death deed should only be considered in certain circumstances depending on your overall estate plan.

With all that said, keep in mind that if nothing is done to handle the real and personal property, then both will pass by operation of law (and perhaps to unintended beneficiaries – think #Prince). More control exists if real and personal property are passed through an effective estate plan, (e.g., by way of a revocable living trust) versus letting state statute decide. So, if you are recently divorced or in the process of divorcing, ask yourself what should happen to your real and personal property and be sure to take action so the real and personal property does pass in accordance with your wishes. #divorce #estateplanning #transferondeath #revocablelivingtrust

How Divorce Can Impact Your Estate Plan – Beneficiary Designations

May 26, 2016

The last article regarding the impact of divorce on one’s estate plan talked about property settlement agreements and the obligations that must be incorporated into the estate plan. This next article will discuss how most individuals going through a divorce have qualified retirement accounts, life insurance policies and cash, savings or brokerage accounts that may have a beneficiary designation or payable on death or transfer on death designation that needs to be updated. Very often the named beneficiary is the former spouse. What happens if the beneficiary designation is not updated and a person dies having named his or her former spouse on these accounts?

Under Virginia law, upon the entry of a decree of divorce, “any revocable beneficiary designation. . .that provides for the payment of any death benefit to the other party is revoked. A death benefit prevented from passing to a former spouse by this section shall be as if the former spouse had predeceased the decedent.” Va. Code §20-111.1(A). The statute includes payments from life insurance, annuities, retirement accounts, compensation agreements or other contracts where assets are paid at death. This law is favorable for those that forget to update their beneficiary designations, however, there are exceptions. The law does not apply (a) if the property settlement agreement and/or divorce decree provides for the former spouse to be named; or (b) to any trust or any death benefit payable to a trust. Va. Code §20-111.1(C). Furthermore, the Virginia law may be preempted by Federal law.

If the Virginia law is preempted by a Federal law, the Virginia law states that in the event the death benefit is paid to a former spouse for no consideration and the former spouse was not otherwise entitled to such payment, the former spouse will be “personally liable for the amount of the payment to the person who would have been entitled to it were this section not preempted.” Va. Code §20-111.1(D). Thus, if a person remarries, but fails to name their new spouse as a beneficiary on their Federal retirement account and continues to name their former spouse, arguably, the new spouse could seek reimbursement from the former spouse.

However, in the case of Hillman vs. Maretta, a widow sued the decedent’s former spouse for the amount the former spouse received under the decedent’s federal employees’ group life insurance (“FEGLI”). The parties acknowledged that Va. Code §20-111.1(A) was preempted by Federal law. However, the widow argued that Va. Code §20-111.1(D) regarding personal liability was not preempted. After careful analysis and consideration, the Circuit Court of Fairfax County held in favor of the widow. On appeal to the Virginia Supreme Court, the Court ruled that the trial court erred and that Federal law trumps state law. Ultimately, the U.S. Supreme Court agreed with the Virginia Supreme Court.

Thus, in 2012, Virginia’s statute was modified to require every divorce decree to include a notice warning the parties that beneficiary designations may not be automatically revoked by operation of law as a result of the divorce. Therefore, the parties are responsible for updating their beneficiary designations to avoid any unintended consequences. As a result of the Hillman case, updating beneficiary designations, particularly beneficiary designations that are governed by Federal law, is critical.

So ask yourself – when was the last time you updated your beneficiary designations? #divorce #estateplanning #beneficiarydesignation

How Divorce Can Impact Your Estate Plan – Property Settlement Agreements

May 19, 2016

With the increased divorce rate in today’s society, many individuals experiencing a divorce focus on the issues directly involved in the divorce. For example, they may focus on spousal support, child support and the division of assets, but those same individuals forget that after a divorce or even during, there are additional considerations involving their estate plan. This article is the beginning of several articles that will highlight a number of those additional considerations. We begin with a discussion about property settlement agreements and the requirement to maintain life insurance.

As a result of most divorces, a property or marital settlement agreement (“PSA”) is executed in an effort to dictate the obligations of each party to the other party. In most cases the focus is on finalizing the PSA and not the effect of the PSA on other aspects of an individual’s life, such as his or her estate plan. However, during this phase of the divorce, it may be helpful to consult with an estate planning attorney to ensure that the PSA permits some level of flexibility from an estate planning perspective.

For example, if there are children from the marriage, very often the PSA will contain a provision requiring each party to maintain life insurance with a certain death benefit. Thus, one spouse may be required to maintain five hundred thousand dollars ($500,000.00) of life insurance and name the other spouse as the beneficiary, name the children as beneficiaries or name the other spouse as trustee for the benefit of the children. The purpose of such a provision is to provide a substitution for child support in the event of the death of either parent. Very often the requirement to maintain the life insurance ceases when the obligation to pay child support ends.

But what happens if a death occurs and the life insurance proceeds are paid out to the former spouse directly or for the benefit of minor children? In the first instance, the former spouse can receive and use the monies without much oversight. Hopefully, the PSA specifies the permitted uses, but the PSA may be silent and/or the former spouse may disregard the PSA. If the minor children are named as direct beneficiaries, then a court proceeding requesting guardianship of the child’s estate may be required and the court’s oversight continues until the child reaches age 18, at which point the child has the ability to receive unfettered access to the funds. If the PSA simply states that the former spouse is to be named trustee for the benefit of the children, what are the provisions of the trust agreement? Does the so-called trust remain discretionary and then become available when the child reaches age 18?

The complexity surrounding the beneficiary designation and possible involvement of the court can be resolved if the PSA permits the parties to name a revocable living trust that would include provisions for the benefit of the children. Therefore, the beneficiary designation is simpler since only the revocable living trust is named. Moreover, a properly drafted revocable living trust agreement would contain provisions specifically detailing the trustee, dispositive provisions for the funds and handling any ‘what ifs.’ For example, what if the named trustee (i.e., former spouse) predeceases or what if a child predeceases, who will manage the funds and what happens to the funds in those circumstances?

In the case where complex estate planning exists, such as irrevocable life insurance trusts, the need to review the estate planning is important to prevent negative tax consequences and to ensure that the proper beneficiaries ultimately receive the assets. Ideally, the initial drafting of such complex estate planning will take into account the possibility of a future divorce. For example, the trust agreements can address what happens in the event of divorce with respect to a spouse continuing as a beneficiary and/or trustee. The PSA would then detail how the assets connected to the complex estate planning are handled or distributed, and by revisiting the estate plan post-divorce, any necessary adjustments can be made.

Therefore, for those who have experienced a divorce or are in the midst of a divorce, have you revisited your estate plan recently? What obligations to maintain life insurance do you have? Does the PSA have certain requirements for the creation of a trust, and if so, what are those requirements? It is better to begin to review all these issues sooner before an event, such as incapacity or death, makes it impossible to resolve later. #estateplanning #divorce #lifeinsurance #revocabletrust