Annapolis, Maryland Wills, Trusts & Estate Planning

Inheritance Taxes and Stepchildren: How Does it Work? - Annapolis Estate Planning

In different states, different rules apply. That is why a local estate planning attorney is the best resource for these kinds of questions.

Here’s a somewhat complicated scenario, but one that is not uncommon today. A man marries three times. Two children are born to his first wife, he next marries a woman with two children who become his stepchildren, and then, in his third trip down the aisle, he marries a woman with no children. What, if any obligations do his stepchildren (from the second marriage, if case you’ve lost track) have, when it comes to his estate?

In New Jersey, his stepchildren are considered Class A beneficiaries, even though he has remarried. That’s the answer from nj.com’s recent article, “I've had three marriages. Will my stepchildren owe the inheritance tax?” As Class A beneficiaries, they can receive transfers at death with no inheritance tax.

The inheritance tax is levied on some inheritances, but not all of them. Whether you’re subject to the tax is based on your relationship to the decedent (the person who died).

Only six states still have an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky, Maryland, and Pennsylvania.

Class A beneficiaries include a spouse, civil union or domestic partner, parents, grandparents, children (including adopted children), and their descendants, stepchildren and a mutually-acknowledged child as defined in the statute.

However, step-grandchildren aren’t Class A beneficiaries. There is some legislation that’s been introduced to make them Class A beneficiaries.

A stepchild is defined by New Jersey statute as "a child of the surviving, deceased or former spouse who is not a child of the decedent."

The law doesn’t say the decedent must not remarry in order for the child of the former spouse to remain a stepchild. Unlike other states like Iowa—where the stepchild's status derives from the marriage and thus ends on divorce—New Jersey’s definition says that the child of a former spouse remains a stepchild and thus a Class A beneficiary.

Therefore, based on the scenario at the top, it looks like the children from Marriage No. 2 are still considered Class A beneficiaries.

Consideration should also be given to qualification as a mutually-acknowledged child, if the decedent, for not less than 10 years prior to the transfer, stood in a mutually acknowledged relation of a parent, as long as the relationship started prior to the child's 15th birthday and was continuous for 10 years thereafter.

Inheritance taxes can become a complicated depending upon your state of residence. You’ll definitely want to sit down with an estate planning attorney every time you marry,  especially if there are children involved. The estate planning attorney will be able to advise you about the inheritance and estate tax obligations for your spouses, children and stepchildren.

Reference: nj.com (February 21, 2019) “I've had three marriages. Will my stepchildren owe the inheritance tax?”

Holden & Campbell, LLC – Annapolis Estate Planning

What Happens When There’s No Prenup for Billionaires? - Annapolis Estate Planning

How do you divide a nearly trillion-dollar empire when a divorce occurs and the CEO doesn’t have a prenup? Investors are wondering and watching to see.

With a 16% stake in the Amazon, how will founder Jeff Bezos’ divorce impact the company? There’s no prenup in place, and since MacKenzie Bezos has been his wife for the entire ride, from online bookseller to global force, she can anticipate receiving half of the community property. That’s according to Wealth Advisor in the recent article, “Amazon Achilles Heel: Bezos Prenup Disaster Threatens $800B Behemoth.”

That may be a challenge, when the majority of that wealth is in his $126 billion in stock. Jeff can give her close to 40 million shares and a few of their houses and call it good, but there can be problems with that arrangement, too.

MacKenzie could get half the stock in exchange for giving up the voting rights and the right to sell. This would effectively lock her in as a silent partner, shoring up Jeff’s continued control. Amazon could give her a prestigious but non-executive role on the board. She would certainly be a candidate to serve as director, with her 8% of the stock.

MacKenzie needs a way to liquidate whatever shares she gets, because Amazon doesn’t pay dividends and is unlikely to do so for the foreseeable future.

There’s no simple way to turn that asset into current cash flow, short of selling some stock. In fact, that’s what Jeff does now: he’s been selling a bit of his to fund other investments and the family lifestyle, in addition to paving the way for philanthropic ventures.

MacKenzie will need the same authority in her divorce settlement, or she’s still going to need cash.  At some point, a judge may allow her to sell $60 billion in stock.

The goal now is making sure that Jeff keeps control of the company. That should have been the plan years ago. Amazon doesn’t have a real succession plan. There’s no trust holding the stock safe for future generations. And the company doesn’t even carry life insurance on him. As a result, they are all subject to his mortal frailty. Divorce hit before death or disease, but it was only a matter of time.

Jeff has done the same thing that many business owners do. The scale is different but the lack of succession planning for the loss of a key person is the same.

Reference: Wealth Advisor (January 14, 2019) “Amazon Achilles Heel: Bezos Prenup Disaster Threatens $800B Behemoth”

Holden & Campbell, LLC – Annapolis Estate Planning

How Does Divorce Impact My Estate Plan? - Annapolis Estate Planning

Was 2018 the year you finalized your divorce? Many people did all they could to finalize their divorces before New Year’s Eve, because there are new tax rules that will impact ex-spouses in 2019.

There’s bad news for those who did not get their divorce finalized by the end of 2018. Among the new tax laws are changes to alimony and taxes. Paying alimony is no longer deductible to the person who is making the payment. It’s also no longer taxable by the person who is receiving it. This doesn’t work well for anyone – the payor loses a deduction and it’s likely the receiver will get less in alimony because there’s less money available to the payor.

Forbes’ recent article, “9 Things You Need To Know About Estate Planning After Divorce” suggests that if you were one of those whose divorce was finalized last year, it’s time to revise your estate plan. It’s also good idea for those people who divorced in prior years and never updated their estate plans. Let’s look at some of the issues about which you should be thinking.

See your estate planning attorney. Right off the bat, send your divorce agreement to your estate planning attorney, so he or she can see what obligations you have to your ex-spouse in the event of your death.

Health care proxy. This document lets you designate someone to make health care decisions for you, if you were incapacitated and not able to communicate.

Power of attorney. If you had an old POA that named your ex-spouse, it should be revoked, and you should execute a new POA naming a friend, relative, or trusted advisor to act as your agent regarding your finances and assets.

Your will and trust. Ask your attorney to remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee.

Guardianship. If you have minor children, you can still name your ex-spouse as the guardian in your will. Even if you don’t, your ex-spouse will probably be appointed guardian if you pass away, unless he or she is determined by a judge to be unfit. 

A trust for your minor children. If you don’t have a trust set up for your minor children, and your ex-spouse is the children’s guardian, he or she will have control of the children’s finances until they turn 18. You may ask your estate planning attorney about a revocable trust that will name someone else you select as the trustee to access and control these funds for your children, if you pass away.

Life insurance. You may have an obligation to maintain life insurance under the divorce agreement. Review this with your estate planning attorney and with your divorce attorney.

Beneficiary designations. Be certain that your 401(k) and IRA beneficiary designations are consistent with the terms of your divorce agreement. Have the beneficiary designations been updated? If you still want to name your ex-spouse as the beneficiary, execute a new beneficiary designation dated after the divorce. It’s also wise to leave a letter of intent with your attorney, so your intentions are clear.

Prenuptial agreement. Talk about this with your intended long before the wedding. If you both come to the marriage with assets, children, etc., having this document done can help you work through financial issues. Ideally, you’ll toss it in a drawer and never need it. However, if you need it, you’ll be glad you planned things out in a calm state of mind.

Make this the year you get your divorce and your estate plan all tidied up, so you can move on to a great year.

Reference: Forbes (January 8, 2019) “9 Things You Need To Know About Estate Planning After Divorce”

Holden & Campbell, LLC – Annapolis Estate Planning

Prenups for Tech Entrepreneurs – Annapolis Estate Planning

Maybe you made your first million in a crowdfunded start up, and now you’re working with venture capitalists on your next big idea. If marriage is on your event horizon, you may need a prenup.

Not every tech-savvy entrepreneur makes millions, but many millennials are finding themselves in the right place, at the right time, with flush bank accounts. If that’s the case, says CT Post, in “Millennial Millionaires and Their Prenups-What They Need to Be Thinking About,” they need to think very seriously about having a prenup. Not very romantic? No, but with a lot to lose, you want to protect both spouses.

The use of prenups has increased five times in the past two decades for millennials, according to the American Academy of Matrimonial Lawyers (which defines millennials as those ages 18 to 34). Celebrities like Kylie Jenner and Justin Bieber have signed premarital agreements with their partners, and many young marrieds active in the startup world think that premarital agreements are a wise move.

A prenup lets entrepreneurs protect what they have worked so hard for. Up-and-coming millennials and entrepreneurs are waiting longer to get married. As a result, they typically have more assets, accumulated wealth from a 401(k) and stock options and possibly real-estate ventures. They could potentially lose a lot, if a prenup isn’t put into place. They also need to protect their intellectual property, and the very idea of a business has to be protected. For example, with Kylie Jenner and her makeup line, she decided to shield what assets she has now and those she’ll accumulate throughout her marriage. Her business won’t be communal property.

A marriage is a two-person team, so a couple should carve out some partnership in their marriage. This is commonly the family home or the greater salary, but investment properties are best left undivided. If you think a prenup is good for you and your fiancé, remember these guidelines:

Work with a business attorney. Your legal counsel must be business savvy and understand how to best plan for future contingencies. Each party should also have their own separate attorney for a prenup to be valid.

Plan ahead with a prenup. Don’t begin arranging for a prenup a month before your wedding. If you have significant assets, it will take some time to draft.

Look at the details. Determine if your partner has offshore accounts. It also matters where you will reside. Some techies, originally from China or India, have international attorneys that increases the time required to draft an agreement.

Every prenup is unique. There’s no one size fits all. There are many variables and they’re unique to each relationship.

Still not convinced? Imagine yourself suddenly single, with a demanding 24/7 job, children to raise and a house to run. If that would work better with a plan in place, then you need a prenup.

Reference: CT Post (November 5, 2018) “Millennial Millionaires and Their Prenups -- What They Need to Be Thinking About”

Holden & Campbell, LLC – Annapolis Estate Planning

Another Reason Why You Need an Advance Care Directive and an Updated Will - Annapolis Estate Planning

What kind of funeral do you think your almost ex-spouse will plan on your demise? Avoiding that scenario is easy to fix, even if you intend to stay permanently separated: update your estate plan.

The unsettling week that brought news of two very accomplished people who took their own lives also put a spotlight on their marital status. Kate Spade and Anthony Bourdain were not divorced from their spouses, so their “not-quite ex’s” will be in charge of everything, unless their estate plans were updated to reflect other wishes.

Forbes’s recent article, “Kate Spade, Anthony Bourdain And Estate Planning When You Are Separated,” explains that when spouses decide to divorce, it’s usually a legal process. However, it’s becoming more common for spouses to remain permanently separated but not divorced. This is a gray area for both family law and estate law, where many don’t realize the legal implications.

Although the details of Kate Spade’s separation aren’t known, Bourdain’s separation from his second wife are, and his situation is a common one. He and his estranged spouse were together for years, but their work and other commitments caused them to move in separate directions. They had one child, whom they wanted to co-parent together.

However, with his untimely death, it brings up an odd result: his estranged spouse is his beneficiary.  She will also be the owner of his legacy. In terms of immediate issues, she controls his remains and his funeral. Bourdain’s mother told the media that she was unsure of funeral plans with his estranged spouse still legally his next of kin. She said, “Although they are separated, she’ll be in charge of whatever happens.”

While this might be okay for the Bourdain family, in the event you consider a permanent separation, it may be wise to consider the pros and cons of an estranged spouse’s rights. When you get married, spouses are given rights previously unavailable to them in their single status with their partner.  Separation doesn’t mean your spousal rights are immediately wiped out. Only a final divorce decree can fully terminate spousal rights. If there’s a death prior to a divorce, in most situations the surviving spouse will have legal control.

Even if the separation is amicable, there are a few things to consider. Make sure someone other than your estranged spouse is able to plan your funeral. To do that, you need to have a new Health Care Directive put in place. That’s a legal document, in which a person specifies what actions should be taken for their health, if they’re unable to make those decisions. It also address the disposition of the body in the event of death. Make sure that your funeral plans are included in your health care directive. In contrast to changing beneficiary designations or your estate plan in a divorce proceeding, you can make a new directive, and you aren’t required to name your spouse.

A final piece when the estate plan is updated: make sure to tell the people who will be involved: adult children and any others who will be in charge of you and/or your estate. Make sure that your estate planning attorney and your matrimonial attorney are in touch so that all bases have been covered.

Reference: Forbes (June 12, 2018) “Kate Spade, Anthony Bourdain And Estate Planning When You Are Separated”

Holden & Campbell, LLC – Annapolis Estate Planning

Blended Families Need to Blend Estate Planning Too - Annapolis Estate Planning

Estate plans are as individual as the families that they are created for. Blended families need estate plans that address their own dynamics, including the resources and children that each spouse brings to the new family.

Blended families who marry, when children are young, are different from those who marry after their children are grown and have established their own families. Without years of living together as step-siblings, the dynamics may be considerably different.

Hometown Life’s recent article, “Blended marriages take careful estate planning,” discusses what happens when second marrieds combine their finances and must determine how to divide their estate. Their big question centers on how to address the kids, upon both of their deaths.

Many couples in blended families wonder what obligation they each have to the other’s children. The answer is simply none. A spouse doesn’t have to leave them anything in his or her estate. If they adopted the children, it’s a different story. However, as to step-children, think Cinderella: you have no obligation to them whatsoever.

 However, if you do have children together, you have some legal duty. You don’t have to leave them anything, but you can’t ignore them. If you opt to disinherit a child for whatever reason, you should note this in your will and trust, and state specifically that they’re being disinherited.

For blended families, when it comes to estate planning, remember that it doesn’t matter what other people are doing. You should do what you think is best for your situation. Work with an experienced estate planning attorney, who has worked with blended families before. They will understand your situation.

Blended marriages are now common. There’s no right and wrong way to do things. Don’t feel pressure from others, because every family situation is different and, particularly in blended marriages, the issues can be complex. The best time to do your estate planning is not when you are facing an emergency, but when you have time to analyze the issues, discuss them with each other and consider how you want to go forward.

Finally, it may be a good idea to discuss your estate plan with your adult children. This also depends on each individual situation. If you have a close-knit family, it’s a smart idea to discuss your estate plan with them.  However, if your family isn’t close, and you believe it will cause you problems and stress to discuss it with the children, then don’t do it.

An estate planning attorney who has worked with blended families will be a good sounding board for the couple. There are few situations that they have not run into, and she or he will be able to help you ensure that your estate plan reflects your wishes and protects the family.

Reference: Hometown Life (May 31, 2018) “Blended marriages take careful estate planning”

Holden & Campbell, LLC – Annapolis Estate Planning

Do You Have to Make Financial Planning Part of Your Wedding Planning? – Annapolis Estate Planning

No, it’s not as romantic as planning a honeymoon along a sandy beach. But once you’ve worked through the financial and legal part of planning your new life together, many issues that plague marriages will be resolved. That’s romantic!

The leading cause of stress in relationships in general and marriages in particular are finances, as reported in an article from My Primetime News, “Hearing Wedding Bells? Be Sure Finances are Included in Your Planning,” by Gerald Rome, Colorado Securities Commissioner. As many as a third of people, say that money is the primary source of discord in their partnership. Therefore, why not eliminate the problem by addressing it?

Rome notes that summer is wedding season. Whether you’re taking the plunge later in life—maybe for the second time or advising a young couple about to make the ultimate commitment—much of the thought process is the same. There’s perhaps no topic less uncomfortable, but more important, than finances.

Before you or a loved one say, “I do,” be sure to consider the following:

Transparency. Many divorces stem from a lack of honesty about finances. Before you walk down the aisle, be sure you know everything about your betrothed’s financial past, spending habits, investing philosophy, and goals for the future. That means sharing information on major debts from education, business, and home loans, as well as credit scores and bankruptcy history. If you’re entering a second marriage, be truthful about any alimony being paid to or received from a former spouse.

For those marrying later in life, think about how or whether to merge accumulated assets and how to compromise on handling financial affairs, after what may have been many years of individual decision-making.

Financial Roles. For co-mingled finances, it’s important to be certain that you’re clear on who will handle what. Many financial issues that arise later in life, are due to one spouse not knowing what’s going on and being deluged with a mountain of new information and decision-making, in the event of a spouse’s sudden illness or death.

Prenuptial Agreement. Detailing what will happen to assets if the marriage fails, isn’t about a lack of trust—it’s about being prepared.

Estate Planning. Organize your property to ensure that no matter what happens, your family’s financial needs will be met. This includes drafting powers of attorney, creating or revising your wills, purchasing life insurance policies, revisiting retirement accounts and investment funds, establishing trusts and naming beneficiaries and considering any tax implications.

By dealing with the business side of marriage from the start, you may learn a lot more about your intended than you would if you had avoided the conversation. Once you know what each other’s financial status is, good or bad, you can figure out how to fix it—or enjoy it! By working with an experienced estate planning attorney and getting your estate plan prepared, you’ll be ready to relax and enjoy each other, without any nagging worries about financial or legal mysteries.

Reference: My Primetime News (May 2, 2018) “Hearing Wedding Bells? Be Sure Finances are Included in Your Planning”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Post-Divorce Tasks to Protect Finances - Annapolis Estate Planning

Once your divorce is done, you still have work to do. There are many financial and legal tasks to tackle, which cannot be ignored, unless you want to create big problems in the future.

There is nothing pleasant or easy about working through a divorce settlement. Emotions run high and when there are large sums of money or privately-held businesses in the mix, things can take a long time.

Forbes recently published an article, “A Checklist To Help You Manage Post-Divorce Finances.” According to the article, many women are disappointed to learn that all their divorce-related financial troubles aren’t neatly resolved when their ex signs the settlement documents.

 It is true that your agreement will say exactly what must be divided and how much goes to whom.  However, you’ll need to work through the practical details of how the agreement is implemented.

Some of the post-divorce financial matters you’ll face, like changing your name, address, and emergency contact, are simple enough. You only need a copy of your divorce decree.  However, other issues can be more complex and serious.

If you haven’t done so already, you should take care of the following:

• Watch your credit and cancel any joint credit cards. You should also establish credit in your name alone;
• Disinherit your ex. See your estate planning attorney to make changes to legal documents;
• Change beneficiary designations on your insurance policies, retirement accounts, pensions, trusts, and annuities;
• Sell or refinance the marital home. You may agree to sell it, with the proceeds divided between you, or if you are keeping the home, refinance the mortgage in your name alone.

Even if you and your ex are on good terms, it may be best to have your attorney involved to make sure the final details are handled, as per the terms of your agreement.

Reference: Forbes (February 12, 2018) “A Checklist To Help You Manage Post-Divorce Finances”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Make Sure Your Divorce Degree Aligns with Your Estate Plan and Vice Versa – Annapolis Estate Planning

Forget to make these changes and your heirs may never forgive you. Forget to align these documents, and your estate planning attorney will never forget you.

Once the process of legally ending your marriage begins, you will need to make sure that your own interests are protected and that includes updating your estate plan to reflect this big life change. While some things may remain the same, like leaving your children certain assets, be assured that pretty much everything else will change, according to Forbes’ article, “The First Thing You Must Do When Your Divorce Is Final.”

Once your divorce is final, that is, the divorce decree has been approved by a judge, and a judgment rendered, contact your estate attorney and begin to review and revise the following legal and estate planning documents:

• Trusts
• Powers of Attorney (property, healthcare, HIPAA, etc.)
• Your will
• Life insurance policies
• Retirement accounts

If your ex-spouse is the beneficiary of your life insurance policy and you die—guess what? The proceeds are going to go straight to your ex-spouse and not your children. It doesn’t matter if your estate planning documents stipulate that the proceeds should go to your children. Unless the plan all along was to keep the ex as beneficiary, you’re fine. Otherwise, the kids get zero.

If you don’t even have a valid will in place, the divorce cuts the ex-spouse out as a legal heir, and that person won’t be in line to receive anything from your estate. But they still get the insurance proceeds if you don’t make the beneficiary change.

What is often overlooked is this: when you make changes to estate planning documents, the changes must be in accordance with the terms of your divorce decree. The divorce judgment is legally binding, and if as a part of your divorce, you agreed that your ex-spouse would remain the beneficiary of a life insurance policy, you can’t go ahead and change the beneficiary designation on the policy.

If these documents are not in agreement, the divorce judgment will override any decisions you made in your will. Your estate planning attorney will need to review your divorce decree while preparing new documents for your new life.

Reference: Forbes (August 14, 2016) “The First Thing You Must Do When Your Divorce Is Final”

Holden & Campbell – Annapolis, Maryland Estate Planning Attorneys

Financial Guidance for Late-in-Life Divorces - Annapolis Estate Planning

"There are no 'do-overs' after you agree to a settlement," says Vickie Adams, a certified financial planner and certified divorce finance analyst in San Pedro, Calif. "After 50, you'll have fewer years to recoup from financial errors, so it's essential to get this right." Here are a few tips for protecting your finances during a later-in-life divorce.

Unfortunately, divorce is possible at any age. But there are differences in financial tactics depending on your stage of life, particularly for divorce after age 50. A recent article in USA Today, titled "Protect finances in later-in-life divorce," provides some tips for protecting your finances during a later-in-life divorce.

Use a third party mediator. Although some couples can sort things out on their own, many others use an impartial third party to help with the process. The original article says that couples heading into a divorce who choose to litigate should give their attorneys permission to contact their accountant, estate planning attorney, and financial adviser.

Look at your shared and individual debt. Hidden debt can be a nasty surprise when people divorce, and is all the worse if you live in a community property state where you’re responsible for half your spouse's debt—even if the debt isn't in your name. In non-community property states, you can still have trouble if you and your spouse hold credit cards or joint loans. Get a full credit report before filing for divorce to be aware of hidden debts prior to negotiations.

Review your assets and retirement benefits. Most assets will be considered marital assets, notes the original article. Consider paying out a lump sum to your spouse for a lower amount than if you were to hold onto the assets. You can also transfer certain assets into a life estate or into a trust for your other family members. Don’t make any moves without consulting your legal counsel!

Some believe their divorce decree is protection for their retirement account. Not so. You need a separate order, typically called a Qualified Domestic Relations Order. This order covers the division of retirement benefits and allows money in a plan to be distributed to another owner without the usual transfer taxes and penalties. You should also look at the beneficiaries on assets like life insurance, investment accounts, and bank accounts to see if you need to make any changes.

Hold on to health care. A settlement should incorporate any specific health issues to ensure adequate long-term care. Some states allow the insured spouse to extend coverage to the dependent spouse. In some circumstances, it may be wise to permit a spouse to keep receiving health care coverage. If that’s not an option, make sure to shop for potential health insurance plans and factor those costs into the agreement.

How divorce can affect your Social Security. Even if you remarry after your divorce, your former spouse is entitled to benefits based on your Social Security record if that marriage spanned more than 10 years and if he or she is over 62 and unmarried. The amount of the benefit is calculated on your former spouse's earnings versus the amount he or she would receive from your benefit.

After your divorce, you should concentrate on rebuilding your financial security. Speak with an estate planning attorney to evaluate your new financial situation and to uncover new opportunities to save and invest for a more certain future.

While you are at it, get your estate plan revised!

Reference: USA Today (November 23, 2014) "Protect finances in later-in-life divorce"

Holden Campbell, LLC - Annapolis, Maryland Estate Planning Attorneys