Estate Planning Issues in a Dissolution of Marriage
I f something should happen to your divorcing client — let’s call her Luci — and she dies before the divorce is final, can her husband still get her property under the terms of her will (which she did not change)? Or, if she is injured in an accident and cannot make decisions for herself, can her husband make healthcare decisions for her or handle her finances? This article will review the rights of control under certain documents and basic inheritance rights of a spouse during two general periods in a dissolution of marriage: 1) after the petition for dissolution is filed, but before final judgment, still legally married; and 2) after the final judgment is entered, no longer married.
Incapacity of One Party — Who Makes Decisions and Controls Property?
What happens when one party in a marriage becomes incapacitated? The incapacity could be permanent due to loss of mental ability or temporary due to a recoverable physical injury. Who will make decisions for Luci’s healthcare? Who will have the ability to control Luci’s financial and business matters? The decisionmaker will be determined by the documents she has in place or, if none, by Florida law.
• Durable Power of Attorney — A durable power of attorney is a document giving the powers of one person to another person. A power of attorney does not have to be filed with the court, but does have to be executed with the same formalities as a last will and testament (signed by a principal, two witnesses, and notarized).1 I f Luci has validly executed a durable power of attorney, that designated decisionmaker (called the “agent” or “attorney-in-fact”) can act in accordance with the authority conferred under the document. This authority is exercisable even after Luci — the “principal” — becomes incapacitated if the power of attorney is “durable.”2 I f it is “nondurable,” the power is terminated upon Luci’s incapacity.3
If Luci has named her husband as her agent under her power of attorney (whether durable or not), Florida’s new power of attorney act provides for an automatic termination of all authority granted to the spouse under the power of attorney upon the filing of an action for dissolution or annulment of the marriage or legal separation of the agent to the principal.4 T he statute seeks to minimize the risk that the soon-to-be former spouse would withdraw all of the assets of the other spouse using the power of attorney. The principal could draft a contrary provision in the power of attorney, however, and override the statute’s default provision. Upon the death of the principal, the authority of the agent ceases, and the power of attorney terminates.5
• Guardianship of Person or Property — If Luci did not have a valid power of attorney and became incapacitated, her husband could petition the court to be appointed guardian over her (“of the person”) and over her assets (“of the property”). Preference in whom the court may appoint as her guardian is given to someone related by marriage or blood to the incapacitated person.6 I n light of the dissolution proceedings, the court may give preference to someone other than the spouse. However, Luci can declare a preneed guardian to state who she prefers to serve as her guardian, if that became necessary during the divorce proceedings.7 A lthough a preneed guardian may be unnecessary for many clients, those with significant assets or those who may become incapacitated in the foreseeable future should be advised of a preneed guardian as an advance planning tool and safeguard to complement the dissolution proceedings.
• Successor Trustee of Trust — Luci may have established a revocable living trust as part of her estate plan during her marriage. Many individuals choose a revocable living trust as an alternative to a complicated and/or contested probate proceeding after their death. Also called a revocable inter vivos trust, this trust holds Luci’s property and is used for her benefit as the settlor during her life and for the benefit of the designated trust beneficiaries at the time of her death. Because it is revocable, the settlor has the ability to amend the trust and can even serve as trustee during capacity.
If the spouse is named as a trustee of a trust (either an initial or successor trustee) and the trust instrument does not address the situation of divorce (or filing for divorce), the spouse may be able to serve as a trustee during and after divorce. The settlor or trust beneficiaries may or may not be able to remove the spouse as a trustee under terms of the trust instrument or under Florida’s Trust Code in F.S. Ch. 736 (2011). While Luci has capacity, as settlor of her trust, she may wish to amend the trustee succession or the power of removal of trustee provisions set forth in her trust instrument.
• Healthcare Surrogate — As part of her comprehensive estate plan, Luci may have designated a healthcare surrogate. This document designates a person to make healthcare decisions for the principal when the principal is incapacitated to provide informed consent.8 T his designation is effective until it is revoked, unless the document states a time of termination.9 I f Luci has designated her soon-to-be ex-husband as her healthcare surrogate, she may wish to revoke the document at such time as she decides that, should she become incapacitated, she does not wish for her spouse to make healthcare decisions for her.
• Living Will — Another estate planning tool utilized by Luci is a living will. A person may make a living will expressing his or her desires concerning life-prolonging procedures and may designate a surrogate within the document to execute his or her wishes.10 I n the absence of a revocation of the surrogate, the designated surrogate can act. If Luci has designated her soon-to-be ex-husband as her surrogate under her living will, she may wish to revoke the document upon deciding that she does not wish for her spouse to make decisions regarding the withholding of life-prolonging procedures for her. Revocation is as simple as verbally communicating the desire to revoke to the surrogate, healthcare provider, or healthcare facility, or can be as formal as a written revocation.11 A designation of a divorcing spouse as surrogate is considered revoked upon the signing of the final judgment of dissolution of marriage.12
• Healthcare Proxy — In the absence of an advance directive document executed by the client, healthcare decisions for an incapacitated patient are made by those in the following priority: judicially appointed guardian, or if none, the patient’s spouse.13 T herefore, if Luci were hospitalized and unable to make healthcare decisions due to her incapacity, her estranged spouse could have priority in making healthcare decisions absent a designation stating otherwise. During the divorce proceeding, the client could execute a healthcare surrogate and living will to plan around the proxy designation.
Death of One Party — Who Gets the Property and Has Rights to It?
As sometimes occurs while a dissolution action is pending, one of the spouses dies while the parties are still legally married. Does the surviving spouse still have all of the rights as if they were married with no dissolution pending? Who gets to direct the disposition of the decedent’s remains? What rights still linger if one of the parties dies after the dissolution is final, but none of the documents have been changed?
• Treatment of Decedent’s Remains — Currently, the law allows anyone to carry out written instructions of the decedent regarding the decedent’s body and burial arrangements before a personal representative is appointed by the court.14 I f your client has specific wishes regarding his or her burial arrangements, the client can avoid a battle between family members by executing written instructions.15
• Jointly Held Assets — Common jointly held assets include bank accounts, real estate, or securities. Assets held with rights-of-survivorship or as tenants-by-the-entireties pass by operation of law to the surviving joint-tenant if one party dies while married.16 U pon the dissolution of the marriage, tenants-by-the-entireties become tenants in common under F.S. §689.15. If clients are unfamiliar with how their property is titled, or whether an account has a payable-on-death provision, they should investigate further and make any changes necessary within the scope of the divorce litigation.
• Beneficiary Under Will or Revocable Trust — Upon the death of a party while still married, the surviving spouse will receive the real or personal property granted to him or her under the will or revocable trust, unless the terms of documents contain contingencies. A contingency provision could require that no proceeding for dissolution of marriage be pending at the time of the testator’s death. Of course, the surviving spouse could execute a qualified disclaimer to not accept some or all of the assets, but why would he/she? The client could amend the existing testamentary documents — will and/or trust — to remove the soon-to-be former spouse. Simply removing the spouse from the documents, however, does not completely remove the spouse from inheriting by an elective share (discussed below). It can, however, reduce the inheritance from a likely 100 percent share to a 30 percent share.17
Upon the death of a party after divorce is final, however, any provision of a will or revocable trust executed while married that affects the former spouse becomes void upon the divorce or dissolution of the marriage. The will or revocable trust is construed as if the former spouse had died at the time of the divorce (unless the will, trust, or final judgment expressly provides otherwise).18
• Homestead — If Luci updates her will and revocable trust to exclude her soon-to-be former spouse, but holds title to the marital homestead in her name only, what happens upon her death while still married? Luci’s surviving husband automatically receives a life estate in the homestead with a remainder to Luci’s descendants. If Luci does not have a descendant, her husband takes the entire interest.19
The only way to plan around this result is to have the spouse waive the homestead rights before the death of the owner. This can be done by a nuptial agreement, a separate stand-alone homestead waiver, or in the marital settlement agreement if it stands alone in the absence of a final judgment. It is possible, after the owner’s death, for the surviving spouse to execute a qualified disclaimer not to accept the homestead interest, but why would he/she?
• Probate Estate — If Luci dies before the dissolution is final — that is, she is survived by her husband — a probate estate may be necessary to administer her individually held assets. Who gets her probate estate or has rights to control it?
Elective Share. A surviving spouse is statutorily entitled to an amount equal to 30 percent of the decedent’s augmented elective estate. This augmented estate is comprised of jointly held property, life insurance, revocable trust property, retirement plans, and certain property already transferred by the decedent.20 A s stated previously, even if the will and revocable trust are updated to exclude the spouse, this statutory right is enforceable. The client can plan for this situation with a contingent elective share trust under F.S. §732.2025(2). The elective share is unavailable to the surviving spouse once the dissolution is final.
Intestate Share. If Luci were to die without having a validly executed will, the portion of her probate estate that is not disposed of by her will passes under the state laws of intestacy. The spousal intestate share was amended effective October 1, 2011, to provide that the spouse receives all of the estate if there are no children or if all of the decedent’s children are the only children of the spouse.21 I f either spouse has a child by a prior marriage, the surviving spouse receives one-half of the estate. Additionally, Luci’s husband is given preference in an intestate estate to being appointed personal representative of her estate.
Pretermitted Spouse. If Luci married her husband after making her will, and her new spouse is not mentioned in the will and he survives her, the surviving spouse receives an intestate share.22
Exempt Property. Additionally, the surviving spouse is entitled to exempt property: household furniture, furnishings and appliances up to $20,000 net value, two motor vehicles (each less than 15,000 pounds), qualified tuition plans, and state pension.23
Family Allowance. Florida law also provides Luci’s surviving spouse and the heirs that she was supporting a reasonable allowance up to a total of $18,000.24
Protection from Legal Presumption. Finally, case law provides protection to the surviving spouse from a legal presumption of undue influence in a will contest. In a marital relationship, the requirement of “active procurement” would almost always be present.25
• Pay-on-Death (POD) or Transfer-on-Death (TOD) Accounts — There are assets that Luci can own that would pass to a beneficiary that she named even in the absence of a will. A bank account or securities account can be designated to pay out or transfer, upon the death of the owner, to the person named as the beneficiary.26 I f the designated beneficiary is the spouse, that person will continue to be the designated beneficiary — even after a divorce is final — until Luci amends the account documents.
• Life Insurance Policy Death Proceeds and Individual Retirement Accounts or Other Qualified Plans — A more valuable asset for an individual, rather than a POD or TOD account, is usually a life insurance policy, individual retirement account (IRA), or deferred compensation plan. The proceeds of a life insurance policy and the benefits of an IRA or other qualified plan are generally paid according to the beneficiary designation provided by the owner to the insurance company or plan custodian. The beneficiary designation should be updated to reflect the client’s wishes upon the filing of a divorce. If the beneficiary designation is not changed to remove the former spouse, the property settlement agreement ( e.g., prenuptial or postnuptial agreement or marital separation agreement) should state with specificity the treatment of the beneficiary designation, the proceeds from the life insurance policy, and/or the benefits from the IRA or other qualified plan.
The leading case on whether a former spouse should receive the life insurance proceeds upon the death of the insured when the beneficiary designation is not amended after the divorce is Cooper v. Muccitelli (“Cooper II”), 682 So. 2d 77 (Fla. 1996). In Cooper II, the separation agreement mutually released each party from all claims of the other, but did not mention the insurance policies. The court stated that to hold that the general language in the separation agreement trumps the specific language in the life insurance policy would place the insurer in an impossible position — the carrier could never be certain whom to pay in such a situation without going to court, in spite of what the policy said or how clearly it was worded. The former wife received the proceeds pursuant to the beneficiary designation.
The reasoning in Cooper II has been extended to beneficiary-designated policies, plans, and accounts other than life insurance policies “because the owner of the policy or plan has to take specific steps to designate a beneficiary and death benefits pass directly to a beneficiary rather than going through probate.”27
When the settlement agreement does mention the disputed policy or plan, the question becomes whether the language in the settlement agreement is specific enough to override the beneficiary designation. In Smith v. Smith, 919 So. 2d 525 (Fla. 5th DCA 2005), the marital settlement agreement identified the insurance policies and retirement plans in dispute, but made no mention of the “proceeds” or “death benefits” of the life insurance policies and IRA and retirement plans. Because the decedent never took the steps necessary to accomplish a change of beneficiary, the former wife was entitled to the proceeds. In Luszcz v. Lavoie, 787 So. 2d 245 (Fla. 2d DCA 2001), the court held that because the marital settlement agreement did not require the spouse to name a particular beneficiary as a condition of dissolution of marriage, the owner of the IRA was free to name whomever as the beneficiary, and the court should look no further than the IRA contract to determine the beneficiary.
The Florida Supreme Court considered language in a marital settlement agreement that specifically referred to a beneficiary-designated policy, plan, or account, but did not state who is to receive the death benefits and did not specify the beneficiary. In Crawford v. Barker, 36 Fla. L. Weekly S252 (Fla. 2011), the court held that general language in a marital settlement agreement, such as a statement of who is to receive ownership of the policy, plan, or account, is not specific enough to override the plain language of a beneficiary designation in the separate document of the policy, plan, or account. “Magic words are not required; however, if the parties wish to specify in a marital settlement agreement that a spouse will not receive the death benefits or wish to specify a particular beneficiary, this should be done clearly and unambiguously.”28
• Employee Retirement Income Security Act of 1974 (ERISA) — If Luci had an ERISA retirement plan, ERISA requires her husband to be the beneficiary of at least 50 percent of Luci’s employee retirement benefits, unless her husband consents to a different arrangement. Further, ERISA directs what is effective for a spousal waiver of rights to the other spouse’s ERISA-covered retirement plan. The federal preemption clause operates in such a way that state law cannot override or dictate the administration of a plan that is covered by ERISA. Family law practitioners should request that the former spouse execute a waiver on an ERISA employee retirement plan (both with an ERISA form and in the settlement agreement/final judgment). Additionally, it is essential for the practitioner to know whether an account is ERISA or non-ERISA and how that may affect equitable distribution.
• Annuity — Traditionally, an annuity provides a guaranteed payment over time to the annuitant until the death of the person named in the contract or until a final date. Upon the death of the annuitant, the company may pay the lump sum or periodic annuity payments, if any, to the beneficiary designated on the contract. The Smith case stated that the Florida Supreme Court’s ruling in Cooper II controls in reference to required language in settlement agreements for an effective waiver of proceeds of an annuity policy.29 T he former husband was free to designate whomever he wished as beneficiary. He made no change to his contract, incidentally, and the former wife took the proceeds as the designated beneficiary.
What Can Be Done to Minimize Unintended Results?
• Release of Nonstatutory Rights or Powers — To cover situations arising before the filing of the petition or during the dissolution proceeding, the client can revoke the nonstatutory rights or powers by simply updating the documents that grant the authority or right and removing the soon-to-be former spouse. Such matters include the durable power of attorney, successor trustee in trust, personal representative nomination under will, will or trust beneficiary, or a life insurance, annuity, or IRA beneficiary designation.30 T o plan for incapacity during marriage ( e.g., if in an accident), the client can execute a healthcare surrogate and a preneed guardian declaration to declare who should be appointed guardian, if that became necessary.
• Waiver of Florida Statutory Spousal Rights — A full or partial waiver of many of the state statutory spousal rights arising upon the death of a spouse ( e.g., elective share, intestate share, pretermitted share, homestead, exempt property, family allowance) may be obtained before marriage ( e.g., prenuptial agreement) or after marriage ( e.g., postnuptial agreement). Such waiver is allowed in a complete property settlement entered into after, or in anticipation of, separation, dissolution of marriage, or divorce. Fair disclosure of each spouse’s estate is required if the waiver is executed after marriage, and the agreement must be executed in the presence of two subscribing witnesses.31
• Marriage Settlement Agreement — Can the marriage settlement agreement in a divorce proceeding set forth a stand-alone, binding agreement between the parties to govern these issues even before the final judgment is entered or in the absence of a final judgment? The case law seems to depend upon the completeness and definitiveness of the agreement.
In Snow v. Mathews, 190 So. 2d 50 (Fla. 4th DCA 1966), the separation agreement between the parties was clearly intended to be a complete and final distribution of the jointly owned property of the parties. About a month after the execution of the agreement, the husband died. A short while later, the wife died, and her personal representative argued that title to the property had vested in the wife upon the death of the husband. The court held that the separation agreement had effectively terminated the estate by entirety as of the date of its execution, so that the husband and wife had become tenants in common.
Alternatively, in Marlowe v. Brown, 944 So. 2d 1036 (Fla. 4th DCA 2006), the husband died before the entry of a final judgment of dissolution of marriage. The court held that a mediation settlement agreement entered at the beginning of the divorce did not control the distribution of property after the husband’s death because the agreement was too tentative and preliminary. In fact, the husband had opposed the wife’s interpretation of it throughout the divorce proceeding.
If one party dies after the final dissolution judgment but while an appeal is pending, the reversal of the divorce decree places the parties in the position they occupied before the decree was entered. The survivor procuring the reversal will be entitled to all rights of succession or the like in the estate of the other, the same as if no divorce has ever been had.32
Clients involved in a dissolution of marriage should consider the documentation they have in place: the decision makers for health and financial matters, the fiduciaries appointed in a will or trust, and the beneficiaries designated on those accounts, which will pay out automatically upon the client’s death — whether death is before, during, or after the dissolution proceeding. The statutory rights arising upon the death of a party can be minimized or eliminated by written agreement, to the extent an agreement can be reached and memorialized.
1 F la. Stat. §709.2105(2) (2011).
2 See Fla. Stat. §709.2102 (3) (2011).
3 F la. Stat. §§709.2109(1)( b) and 709.2102(5) (2011) (defining incapacity as the inability to take those actions necessary to obtain, administer, and dispose of personal property, business property, benefits, and income).
4 F la. Stat. §709.2109(2)(b) (2011).
5 F la. Stat. §709.2109(1)( a) (2011).
6 F la. Stat. §744.312(2) (2011).
7 F la. Stat. §744.3045 (2011).
8 F la. Stat. §765.204 (2011).
9 F la. Stat. §765.202(6) (2011).
10 F la. Stat. §765.304(1) (2011).
11 F la. Stat. §765.104 (1)(3) (2011).
12 F la. Stat. §65.104(2) (2011).
13 F la. Stat. §765.401(1) (2011).
14 F la. Stat. §732.804.
15 See Arthur v. Milstein, 949 So. 2d 1163 (Fla. 4th D.C.A. 2007) (holding that the decedent’s written wishes to be buried in the Bahamas next to her son override the desire of the surviving biological mother to make different burial arrangements).
16 But see Snow v. Mathews, 190 So. 2d 50 (Fla. 4th D.C.A. 1966), in which the marital settlement agreement was sufficient to terminate tenancy by the entireties ownership before death of husband during dissolution proceedings.
17 F la. Stat. §732.2065 (2011). See also Florida Probate Rule 5.360(b) for the procedure to request an elective share.
18 F la. Stat. §§732.507(2) and 736.1105 (2011).
19 F la. Stat. §§732.4015 and 732.401 (2011).
20 F la. Stat. §732.2035 (2011).
21 F la. Stat. §732.102(2) (2011).
22 F la. Stat. §733.301(b) (2011).
23 F la. Stat. §732.402 (2011).
24 F la. Stat. §732.403 (2011).
25 Jacobs v. Vaillancourt, 634 So. 2d 667 (Fla. 2d D.C.A. 1994).
26 F la. Stat. §§655.82, 655.825, and 711.51.
27 Crawford v. Barker, 36 Fla. L. Weekly S252, 12 (Fla. 2011), citing Luszcz v. Lavoie, 787 So. 2d 245 (Fla. 2d D.C.A. 2001) (IRA); In Re Estate of Dellinger, 760 So. 2d 1016 (Fla. 4th D.C.A. 2000) (IRA); and Waller v. Pope, 715 So. 2d 958 (Fla. 2d D.C.A. 1998) (employee pension plan and credit union account).
28 Crawford, 36 Fla. L. Weekly S252 at 20-21. Previously, the Florida Supreme Court noted in Cooper v. Muccitelli, 682 So. 2d 77 (Fla. 1996), that “a settlement agreement that specifically requires one of the parties to maintain a named individual as beneficiary will control the disposition of proceeds upon notice to the insurer.”
29 S mith, 919 So. 2d at 528.
30 See Kenton’s Estate v. Kenton, 423 So. 2d 531 (Fla. 5th D.C.A. 1982) (waiving of statutory spousal rights in a separation agreement in contemplation of a divorce was not a renunciation by wife of her nomination as personal representative under husband’s will).
31 F la. Stat. §§732.702(1) and (2) (2011).
32 Price v. Price, 153 So. 904 (Fla. 1934).
S. Dresden Brunner practices law in the area of wills, trusts, and estates. Her practice has been based in Naples for over 13 years and serves clients throughout Florida and the United States. She concentrates her practice on matters relating to estate planning, estate and trust administration, all aspects of probate law, and related estate and gift tax matters.
This column is submitted on behalf of the Family Law Section, David Lawrence Manz, chair, and Sarah Sullivan and Amy Hamlin, editors.