BASIC ESTATE PLANNING

When you are about to get married the last thing you think about is estate planning. However, for a second or late-in-life marriage, it is the first thing you should think about. This is especially true when there are children or other family members you need to protect. All too often attorneys in domestic relations cases and probate attorneys see the end result of poor planning. Classically what happens is a substantial part of someone’s assets go to the second spouse, either through a death or divorce, rather than their own children.  Highlighted below are areas of law that can be used to protect family and close friends in the estate process. Note that this article is based on Ohio law. If you do not live in Ohio please contact an attorney in your state.

The primary estate planning tools are:

• Pre-nuptial agreement

• A Last Will and Testament

• Payable on death classifications

• Named beneficiaries on insurance policies

• Transfer on death affidavit/deed

• Power of Attorney

• Trusts

Pre-nuptial agreement

This is the most important document that can be utilized in a second, or late in life, marriage. This is a contract that specifically defines a person’s separate assets and liabilities. The goal is to set a baseline as to the assets and classifies them as non-marital assets. The end result is that whatever you bring into the marriage, you leave with those assets. It can even provide for assets acquired after marriage. In the event of a death, this agreement can provide for protection of the living spouse and prior children as well.

Last Will and Testament

A will essentially tells the Probate Court how you want your assets to be divided and who is in charge after your death. It shuts down all arguments among relatives and friends over who handles the estate and the distribution of assets. As long as the will is valid, the Probate Court will do exactly what you direct. Note that many self-prepared wills wind up challenged in a will contest.

Payable on Death

You can contact your financial institution and direct them, in writing, to pay certain accounts to named beneficiaries in the event of your death. Whoever is named as a beneficiary on the account has no control over that account, cannot access information to that account, and can do nothing regarding that account until you die. If, at any time, you decide to change the beneficiary of that account you can do so. In fact, the person you name does not even need to be informed. It can all remain confidential until your death. Keep in mind that any beneficiary of these accounts receives this money, not your estate, and the named beneficiary can use it in any way they wish.

Named beneficiaries on insurance policies

You should always supply a named beneficiary on any life insurance policy you have. The named beneficiary will collect those funds upon your death and be free from any estate claims or creditors. Keep in mind that the beneficiary of a life insurance policy receives that money with no strings attached. It becomes their money and they can use it in any way they wish.

Transfer on Death Affidavits

Ohio now provides that you may direct real estate to be transferred to someone else upon your death. This is now done by affidavit, but it used to be called a Transfer on Death Deed. While you are still living whoever the named beneficiary on the affidavit has no control over that real estate, cannot affect the title of the real estate, and can do nothing regarding the real estate until you die. If, at any time, you decide to change the beneficiary of that account you can do so.

Power of Attorney

Although Powers of Attorney are not technically estate planning tools, they control a lot of things that happen just before death. Ohio essentially has two kinds of Powers of Attorney. One is a General Power of Attorney. This power usually covers business decisions in the event you are ill or unable to conduct your own business. The other is a Health Care Power of Attorney. This document tells your doctor who is entitled to make health decisions in the event you are unable. In a second marriage situation there can be many arguments between the current spouse and children of a former marriage. Most arguments can be prevented by deciding who will make these decisions for you in advance.

Trusts

Trusts are great tools but they are oversold, expensive, and usually fall victim to neglect over time. Trusts are a very complicated subject and volumes have been written about all the different kinds of trusts and their construction. Trusts serve several basic functions. They allow the Grantor (person setting up the trust) to control assets after death, allow for orderly disposition of assets over a long period of time, and provide confidentiality by transferring assets outside of probate court. Contra to conventional wisdom trusts do not serve to avoid tax for the average person. If you feel you need to establish a trust you need to contact a qualified attorney to carefully advise you, help you negotiate through all the complicated trust options and provisions, and prepare the trust. Many people who purchase “do it yourself” trusts online are sorry they did so.

            An ounce of planning beats a pound of cure every time.