Every Divorcing Client Needs Estate Planning
- Estate planners should be working more with family lawyers, and not just because family lawyers are great people. The primary reason is that every single divorcing client of family lawyers needs estate planning!
Indeed, all family lawyers should advise their clients to see a competent estate planner as soon as possible after the initial divorce consultation. I would meet during the initial consultation, if they’d invite me. Yet, it seems not enough divorcing clients are seeing estate planners; thus, I believe more work needs to be done to alert divorcing clients — and their family lawyers — of this need. As a result, and since Florida’s elective share laws have changed significantly these past few years (particularly with a complete overhaul effective October 2001), it is time to revisit this issue of estate planning for divorcing clients.
With this article, I hope to convince divorce lawyers that they should recommend that all their divorcing clients see estate planners, and I hope to foster more interaction between divorce lawyers and estate planning lawyers. For example, when major changes in probate law occur (like the complete overhaul of the elective share statute), estate planners and family lawyers need to work together to be sure the impact is understood by clients.
In addition, from a malpractice protection standpoint, it seems prudent for every divorce lawyer to advise all clients to review his or her estate plan. Should a client die during a pending divorce without having done so (and should their estate plan wind up leaving their entire estate to their now estranged, but not finally divorced spouse), the clients’ family members might wonder why plans were not amended.
For the purposes of this article, I will assume the client (herein referred to as the “client spouse” and referred to in the feminine) has already met with a divorce attorney and has already or is about to file for dissolution against her husband (herein referred to as the “divorcing spouse” and referred to in the male). This article is intended to shed light on why the next step — step two in the process — should be strongly urging the client spouse to spend at least an hour with an estate planning attorney.
Clients with no Existing Planning Documents
Why should divorce proceedings automatically lead to estate planning? There are several fundamental reasons.
Those clients who have no existing formal estate planning documents need to be introduced to an estate planning attorney who can advise them what will happen with their assets upon their death (during the pendency of the divorce), if no further planning is done. At a minimum, such clients should learn 1) the laws governing nontestamentary transfers (i.e. joint assets and assets with beneficiary designations) and 2) the laws of intestate succession.
Under Florida law, a surviving spouse is entitled to his intestate share (maybe 100 percent) of the estate and his interests in nontestamentary transfers (e.g., via joint ownership or beneficiary designation) unless a final decree of divorce has been entered. In Florida, it is the entry of a final decree — not the filing of a petition for dissolution — that causes the divorcing spouse to be considered predeceased both for purposes of the intestacy statute and for many nontestamentary assets. Thus, the filing of a divorce action — whether it is filed by the client spouse or her divorcing spouse — does not cause the divorcing spouse to forfeit his intestate share or his rights to inherit nontestamentary assets. All of this needs to be considered and addressed by our clients in the divorce process.
When a client dies owning individually titled assets and no will, Florida law provides a statutory scheme for disposition. For example, if the client spouse is still married and has no children, then the divorcing spouse receives 100 percent of the client spouse’s assets — no matter how advanced or acrimonious the divorce proceeding may be. Under F.S. §732.102, if there are children of the same marriage and the deceased spouse had no other descendants, then Florida law provides to the surviving spouse the first $60,000 plus one-half of the balance of the estate. If there are any surviving lineal descendants who are not descendants of the surviving spouse, then the share of the surviving spouse is one-half of the estate. But, the laws of intestate succession only apply if the client spouse has no will, or if the will was made before the marriage and wasn’t updated during the marriage (that’s called a pretermitted spouse share, F.S. §732.301). Thus, these rules are very easily circumvented by meeting an estate planner and creating a will. The ease with which these rights may be overcome highlights why it is essential for the client spouse to immediately meet an estate planner.
While the estate planner and the client spouse are considering a will, they also must review the asset ownership. Thus, it is very helpful if the client spouse comes to the meeting with an inventory of her assets and how they are titled. If assets are jointly titled, then there may need to be an accommodation before the joint tenancy can be severed. Clients should not single-handedly attempt to change title in this case. Instead, the estate planners should advise the clients to discuss the joint assets with their family attorneys and consider if accommodations can be reached. If not, then the client spouse must be apprised that death prior to resolution of the case may result in the divorcing spouse receiving those assets.
The client spouse must also consider all assets owned with beneficiary designations. Certain assets cannot be changed without the divorcing spouse’s consent (e.g., qualified pension plan benefits). Other assets can be quickly and easily changed. Beneficiary designations on IRAs and/or life insurance policies, for example, are easy to alter and the custodian of the IRA or the insurance carrier can provide standardized forms for clients to use.
In almost all cases, a client spouse involved in a divorce proceeding will wish to change these beneficiary designations. It is rare and unusual for a client spouse who addresses her estate planning with an attorney to reply that she wishes all her assets to pass to her divorcing spouse.
Clients with Existing Estate Planning Documents
As a result of the pending divorce, it seems likely that the mutual goals and aspirations of the client spouse and the divorcing spouse have been altered. Those mutual goals may have been expressed in prior estate planning and such reciprocal estate plans likely need to be revised.
During happier times in their marriages, many client spouses created estate planning documents (wills or revocable trusts) leaving everything to their spouses. Such “sweetheart” or “I love you” wills or revocable trusts undoubtedly expressed the client spouse’s intent at that time; however, assuredly, the client spouse’s attitudes changed once the divorce began. If the client spouse does not want to spend the rest of her life with the divorcing spouse, it is unlikely she intends to leave all of her assets to him if she dies. Yet, unless she sees her estate planning attorney, that may well be what happens.
Therefore, it is imperative for the divorcing spouse to provide copies of any existing estate planning documents (wills and trusts — revocable or irrevocable), plus an accurate inventory of assets to a competent estate planner. The estate planning attorney can then properly advise how her assets will pass on her death. Assuming the client spouse has new estate planning goals and intentions, the client spouse and the estate planning attorney should address how to best achieve those intentions. Most likely the client spouse will need new estate planning documents entirely. Nevertheless, the process must be initiated, and the client spouse must begin to examine the consequences of her current estate plan.
Enhanced (Augmented) Elective Share Rights
While a client spouse may wish to completely disinherit a divorcing spouse, in some cases that goal is unattainable. Under F.S. §§732.201-732.2155, a surviving spouse has a right to elect to take 30 percent of the augmented estate of the first spouse to die, even if the surviving spouse is intentionally omitted from the estate plan and a divorce is pending. This must be considered and addressed.
In 2001, the Florida elective share statute was modified to extend beyond the probate assets and to include nonprobate assets (including assets in revocable trusts, joint assets, life insurance, etc.). This is called the augmented estate. As a result, it is no longer easy to disenfranchise a spouse’s elective share.
However, that doesn’t mean there is no planning to consider. For instance, the elective share can be satisfied with a disposition outright or in trust. Some types of trusts (just paying income) count toward the elective share at the rate of 50 percent of the value of the trust assets, while other trusts (powers beyond just income — including principal dispositions, powers of appointment, etc.) may count up to 80 percent or 100 percent of the value of the trust assets. So our client spouses involved in divorces may prefer to leave the minimum necessary in a trust for the divorcing spouse, with the children, for example, being the ultimate beneficiaries on the divorcing spouse’s death. Such a plan may be preferable to completely disinheriting the divorcing spouse only to permit him to take outright 30 percent of the client spouse’s estate via the elective share. Moreover, the plan can be drafted so that once the divorce is final, this provision is automatically eliminated.
Because a client spouse’s desire to minimize her divorcing spouse’s access to her assets in the event of death may be a paramount concern, it must be addressed as soon as possible. Again, if the client spouse is not introduced to the estate planner at the very outset of the divorce proceeding, very undesirable consequences could ensue upon the client spouse’s untimely death prior to the entry of a final order or decree of divorce. To the best of my knowledge, there are no decisions in Florida saying a spouse in a divorce cannot change her will or re-order her affairs in such a manner as to minimize her divorcing spouse’s post-death rights. As long as such planning does not hinder or delay the divorcing spouse’s rights to such property in the divorce proceeding, such planning should be permissible.
Guardianships and Trusts for Children
For a myriad of reasons, many client spouses are distrustful of their divorcing spouses, and most would do virtually anything for their children. That is yet another reason why any divorcing spouse with minor children must revise her estate plan (or create one). Some client spouses have fears as to the divorcing spouse’s competency to care for the children. In some cases, caring for the children is not the concern, but caring for the client spouse’s money is.
To some degree, the estate planner’s ability to help in this arena is limited. In many cases, custody is awarded jointly. In those cases, if the client spouse dies, the divorcing spouse will undoubtedly be the guardian of the children. In other cases, even if custody is not joint, the presumption in favor of appointing a natural parent as guardian is so overwhelming that, again, a client spouse should be advised that the divorcing spouse will likely be the children’s guardian no matter what the estate planner attempts to do. Moreover, in my experience, many client spouses are comfortable and satisfied with that being the case. Oftentimes, the client spouse wants the children to be with their father if she dies. However, our clients still need to name alternate guardians of the person for their children. What if the client spouse and her divorcing spouse die simultaneously? What if the father predeceases, fails, or declines to serve? What if he is ineligible to serve (past history of abuse or criminal record)? In all of these examples, the client spouse should have a guardian appointed in her will to show her intent in case the other natural parent is not serving for any reason.
Regarding her property, however, most client spouses have very different feelings. They may be comfortable with the father caring for their children as their guardian of the person, but they rarely want the divorcing spouse to have control over their money once they die. For many client spouses, it is equally bad to leave the divorcing spouse in control of the money as it would be to leave the money outright to him. For that reason, our clients should consider creating trusts for the children and nominating trustees — and successor trustees.
If the fear of having a former spouse manage the children’s money is not significant enough to compel the client spouse to create trusts for her children in her new (or revised) estate planning documents, then the ability to avoid a guardianship should be irresistible. Without trusts, any money left to the children winds up in a court-directed guardianship. Guardianships are costly and time consuming. Moreover, a judge — who the client has never met (and who usually never meets the children) — becomes the arbiter of how the client’s money will be spent for her children. When this situation is explained, most clients say: “No thank you!”
Furthermore, guardianships terminate (in Florida) at the age of 18. Should any child receive a large sum of money outright at the age of 18? What will the child do with the money? Buy a fast car and hopefully not wrap it around a tree, right? Thus, trusts for the children should be established to protect the money from the divorcing spouse, to protect it from guardianship proceedings, and also to protect it from the children themselves.
First Estate Planning Experiences
Sometimes divorce brings wealth to clients who lack experience managing it. A divorcing spouse may have controlled the finances exclusively in the past. Therefore, it will be important for the client spouse to meet the types of professionals who can help her plan her estate. Her old estate planning may be inadequate to cope with her new wealth. For example, she may now need to address estate tax considerations. Or she may need to consider life insurance.
Moreover, the client spouse may not have experience managing investments and may first come in contact with investment advisers. As a result of the pending divorce, it may be appropriate for the client spouse to begin the process of estate planning and wealth management for the first time. In many cases, the family lawyer, working hand in hand with an estate planning lawyer, can help comfort the client spouse and ease her into her asset management responsibilities. As a result of their probate and estate planning practices, estate planning attorneys are very experienced with and attuned to the issues of managing new wealth.
As addressed herein, there are many compelling reasons every divorcing client needs estate planning. Clients involved in a divorce need to consider and address their changed circumstances and their changed estate planning objectives. Any lawyer representing a client in a divorce should advise the client to see a qualified estate planning attorney. Indeed, no divorcing client should ignore the complicated legal issues relating to estate planning that are made acute by the initiation of the divorce proceedings. For all of these reasons, estate planning should be a top concern for divorce lawyers and should be addressed immediately with their clients.
Jeffrey A. Baskies is a partner with Ruden McClosky in Ft. Lauderdale where he counsels clients on charitable giving, insurance planning, prenuptial and postnuptial planning, and probate, trust and guardianship administration and litigation, including beneficiary representation cases, will and trust contests, and fiduciary litigation. He received his B.A. from Trinity College and his J.D. from Harvard Law School and is board certified by The Florida Bar in wills, trusts, and estates law.
This column is submitted on behalf of the Family Law Section, Thomas J. Sasser, chair, and Susan W. Savard and Jeff Weissman, editors.