Dividing Retirement Plans in Divorce
Since almost 48% of marriages in the U.S. dissolve, it is important for legal, investment, and accounting professionals to be aware of the financial, tax, creditor, and health related issues that advisors must be aware of when dividing retirement assets for divorcing couples.
For example, if an ERISA plan is transferred to an ex-spouse, the recipient spouse can take withdrawals from the account without having to pay a 10% early withdrawal penalty upon the transfer, although the recipient spouse will still have to pay ordinary tax on all amounts withdrawn. In contrast, with an IRA, the recipient spouse will have to pay the 10% penalty if he/she withdraws funds prior to attaining age 59½ in addition to an ordinary income tax withholding. Thus, if a divorcing couple has both IRA and ERISA plans, and one spouse intends to begin taking withdrawals before age 59½, the withdrawing spouse will be better off receiving the ERISA plan. For the same reason, the parties might even consider swapping retirement plans.
Depending on state law, ERISA plans, and some IRAs, are protected from the claims of most creditors. For example, if we assume the husband has creditor problems, then the husband should retain all of his retirement plans, and possibly even the wife’s retirement plans. The property settlement can then be structured so that the wife would receive other assets of equivalent value. In such an event, consideration must be given to the fact that the retirement benefits are subject to income taxes, thereby “reducing” the husband’s ultimate share.
Finally, if a defined benefit plan is an asset for a divorcing couple and the participant (assume husband) believes he is in great health and, therefore, will outlive the mortality tables, then he should retain the fair market value of the defined benefit plan, as calculated by an actuary, and transfer other assets of equivalent value to his wife. As such, the husband may obtain a greater benefit than actuarially calculated by the plan administrator. Once again, the income tax consequences must be carefully considered when dividing property between divorcing spouses.
If you are interested in scheduling a complimentary consultation with attorney Phil Levin, Esq. to discuss trust and estate planning, or probate matters, please call The Levin Law Firm at (610) 977-2443.
To learn more about how The Levin Law Firm can create an estate plan designed to help you and your clients achieve their incapacity planning and wealth transfer goals, please contact our office to schedule a Complimentary Consultation at (610) 977-2443.
The passing of two notable movie stars – Philip Seymour Hoffman and Paul Walker – provide a cautionary tale on the importance of keeping your Will, and other vital estate planning legal documents, up-to-date.
In Hoffman’s case, his 2004 Will had never been updated and he fathered two children after it was created. Walker’s 2001 Will also was never updated to reflect important changes in his life. If Hoffman and Walker had sought the advice of a competent estate planning attorney, they would have been well advised to have established flexible Asset Protection Trusts for the benefit of their children, and potentially other family relatives.
Conducting an Estate Plan Checkup, whenever major changes occur in your life – like a birth, death or divorce – is key to ensuring that your Will remains valid and that the people you love are taken care of in the way that you intend.
Following are some additional steps you can take to be sure your estate plan remains valid:
- Make Sure Your Estate Plan is Easy to Locate. It is not uncommon for people to file away their Will in a safe deposit box. While this may seem prudent, it actually causes important estate planning documents to become inaccessible to family members, when they are needed.
- Make Wise Choices When Selecting Executors. You should strongly consider appointing more than one person to serve as executor for your estate – you will want backups if for some reason your primary choice cannot serve – you should also discuss your fiduciary appointment desires with each person that you have selected, in advance, to ensure their willingness to take on the job in the event of your passing.
- Avoid Contradictions in Your Estate Plan. Be sure that your Will, along with any Trusts you establish, do not contradict your choices for beneficiaries of your tax-deferred retirement plan accounts, employees benefit plans, life insurance policies, or annuity contracts.
- Appoint Capable Guardians. If you have minor children, one of the most important functions of your Will is to designate a Guardian, over both the person and property to be received by a minor. You must also designate a back-up Guardian, in case that person fails to qualify or is unable to serve. A contingent Guardian ensures that the raising of your children, or their finances, do not end up in the hands of a judge who did not know you nor the choices you might have made for your children. We have a free report we can send you which details five (5) common mistakes parents make when naming guardians – mistakes you definitely want to avoid! If you are interested, contact our office to ask for a free copy of this valuable report.
- Beware of Unintentional Disheritances. If you are divorced or remarried, and have one or more children from a previous marriage, you may desire to provide for your child(ren) as well as your current spouse. Therefore, it is vitally important that your Will contain the appropriate legal provisions to properly provide for each of your family members in your estate plan. If you wish to intentionally disinherit someone, your intentions can be included in your Will.
- Get Professional Legal Guidance. Wills and other estate planning documents downloaded from the internet are not tailored to the specific needs of your family. In addition, we have discovered that documents found on the internet, and in off-the-shelf software programs, are not in compliance with state statutory laws dealing with trust and estate matters. Therefore, in decisions concerning the ultimate distribution of all assets accumulated over the course of your life, it is very wise and extremelly prudent to seek the experience of a qualified estate planning attorney to help you avoid mistakes that could jeopardize your family’s financial future.
Our clients have found that the best way to learn about protecting their families is to have a Family Wealth Planning Session at our office or their home.
At The Levin Law Firm, we offer a Complimentary Consultation where we can identify the best estate planning strategies to provide for and protect the financial security of your loved ones.
Please call Lauren at The Levin Law Firm to arrange a meeting with attorney Phil Levin to discuss your estate planning needs. Lauren can be contacted directly at (610) 977-2443, or by email at: info@levinlawyer.com.
Owners of closely-held businesses have unique estate planning challenges, as well as excellent opportunities for wealth transfer planning. Of particular concern for most business owners is planning for the transfer of ownership and control of the family business from one generation to the next.
At The Levin Law Firm, our business owner clients are offered in-depth expertise needed to integrate their unique business, tax, and estate planning objectives. This allows us to design and implement a business disposition and estate plan designed to meet their goals and objectives.
We regularly work with our business owner clients to properly address these challenges by recommending appropriate planning strategies required to transfer ownership and control of a family-owned business to surviving owners and subsequent generations. We also collaborate closely with investment and tax planning professionals already working with our clients in order to develop practical and comprehensive solutions for accomplishing their business objectives, while serving the long-term needs of their families.
Many of our estate planning clients have significant portions of their wealth invested in closely-held businesses. When planning for business continuity, we will review the structure of the business, which may be established as a limited liability company, partnership, or corporation. For businesses organized as a S or C corporation, we always review the shareholder agreements and coordinate those agreements with the estate plan. A review of corporate agreements may include recommendations to reorganize or create new business entities. For example, a buy-sell agreement, family limited partnership, limited liability company, or a trust vehicle may also be useful to consider, based upon the particular facts and circumstances of each case.
While working with business owner clients for the purpose of assisting them with formulation issues and structuring a plan designed to keep the business in the family, we also seek to minimize the imposition of transfer taxes. More specifically, we consider the impact of income, gift, state inheritance, and federal estate taxes and recommend appropriate planning strategies to ensure estate liquidity needs are achieved.
Whatever the business owners’ particular goals may be, we strive to ensure that estate and business transfer plans we design and implement are practical, flexible, and consistent with our clients’ unique family situation and business needs.
Asset protection planning is a vitally important cornerstone of every estate plan. A properly formulated plan can be designed to manage assets, guide future generations, and avoid the possible squandering a significant legacy. Utilizing effective estate and business planning strategies is the key to providing families with enhanced protection from creditors, ex-spouses, imprudent investors, or spendthrift beneficiaries.
To arrange a Complimentary Consultation with estate planning attorney Phil Levin, for the purpose of discussing your estate planning needs, or the needs of your clients, please call The Levin Law Firm at (610) 977-2443.
Why is Thanksgiving a Perfect Opportunity to have the Estate Planning Talk?
Dad, could you please pass the gravy…..and tell me where you keep your estate planning documents?
Awkward? Yes!
Important? Indeed!
With the upcoming Thanksgiving and Christmas holidays just around the corner, families will be gathering over food, drink, and laughter.
Amidst all the fun, there may be one or more elephants in the room no one wants to acknowledge. One of the big elephants is parents’ estate planning (or lack thereof). Have the courage to call that elephant out, but very tactfully.
A recent article from The Street.com, titled “Estate Planning Over Thanksgiving? Time to Talk Turkey,” confirms that holidays are a family’s best shot at getting this elephant out in the open with everyone in the same room.
So, if Mom and Dad are serious about having a discussion with their family about their estate planning intentions, then it is best to have this discussion when all siblings are present.
What if your family or culture is averse to raising such topics around the holidays? Consider arranging an annual meeting to let family members know where an estate plan stands.
While conceding that there is no guarantee that the holidays are the best time to set an estate plan in motion, it does provide a natural opportunity to address important concerns in the event of an illness, incapacity, or passing of a family member.
Remember: “An ounce of prevention is worth a pound of cure.” When establishing your estate plan, be sure to engage a competent and experienced estate planning attorney.
Reference: “Estate Planning Over Thanksgiving? Time to Talk Turkey”
Please feel free to forward this edition of Estate Planning Matters to your friends, family members, and colleague who may need to establish or update their personal estate plans.
To learn more about how The Levin Law Firm can create an estate plan designed to help your clients achieve their estate planning goals, please contact our office to schedule a Complimentary Consultation with attorney Phil Levin at (610) 977-2443.
A drama played out in a French courtroom demonstrates that any elderly person can fall victim to financial abuse, even the second wealthiest woman in the world.
Lilliane Bettencourt, 92, is heiress to the L’Oreal cosmetics fortune, and Forbes has estimated her worth at $40 billion. According to a recent New York Times story, a current lawsuit in French court — dubbed the “Bettencourt Affair” — is a story of an elderly wealthy woman who vacillates between vulnerability and independence.
Unfortunately, Mrs. Bettencourt has spend almost the last decade of her life in and out of French courts. Her only child, Francoise Bettencourt-Meyers, sought to have her declared incompetent four years ago when it was discovered that Mrs. Bettencourt had gifted more than $1 billion to a society photographer, François-Marie Banier. Banier is the focus of the current case, where he is being prosecuted for financial exploitation along with several others, including Mrs. Bettencourt’s former wealth manager.
Elder financial abuse is also becoming more prevalent in the U.S. Fortunately, there are a number of advance planning tools that families can employ to help prevent financial exploitation, some of which are as follows:
- Advance Medical Directives – This legal document details your wishes as to your medical care in case of an illness, injury, or incapacity. The provisions designate a person to make health-care decisions on your behalf and spells out who can be given access to your medical records. This legal document is designed to prevent a guardianship proceeding and to prevent your family from having to go to court in order to make medical decisions for you. As a result, Advance Medical Directives can save significant legal expenses, including the time and energy of a having to prepare and file a guardianship application where a judge will determine who will make medical decisions on your behalf.
- Financial Power of Attorney – This legal document designates the person who will be given the power to handle your financial affairs in case you are no longer able to do so yourself. A financial power of attorney will save your family the cost and delays of having to go to court for the purpose of obtaining access to your financial accounts to pay your bills if you are not able to do it yourself. This is an unnecessary court process and could easily cost your family $10,000 or more, if you do not have an up-to-date Financial Power of Attorney. In some instances, courts have declined to appoint children as financial guardian for their parents and appoint a professional conservator instead, which is often not what most individuals would have desired.
- Revocable Living Trusts – In the event that you become incapacitated, if your assets are titled in a Revocable Living Trust, your Successor Trustee can step right in and easily handle financial matters on your behalf and not have to get the court involved at all or collect assets using a Financial Power of Attorney. However, this is only true if specific assets which you own are properly titled in the name of your Trust. Oftentimes, the Trust is drafted and signed, but the client has not funded their Trust. Therefore, we work closely with our clients to ensure that their Trusts are properly funded in order to accomplish their estate planning goals.
Clients and their families can benefit greatly by seeking the counsel and advice of an estate planning attorney who takes the time to get to know them, along with the unique needs of their family.
At The Levin Law Firm, we take the time to learn about the personal and financial concerns of our clients, then work closely with clients, and their advisors, to develop an estate plan designed to achieve their wealth transfer goals.
Please feel free to forward this edition of Estate Planning Matters to your friends, family members, and colleague who may need to establish or update their personal estate plan.
To learn more about how The Levin Law Firm can create an estate plan designed to help your clients achieve their estate planning goals, please contact our office to schedule a Complimentary Consultation with attorney Phil Levin at (610) 977-2443.
