Estate planning during dissolution proceedings
My first job as a lawyer was with a firm that did a lot of divorce work. I did estate planning even then, and I found myself being called on to create estate plans for the firm’s clients at the conclusion of dissolution proceedings.
Over time it became clear that there was a need to do estate planning for clients during the course of dissolution proceedings. People died before they became divorced. People became ill and needed assistance with their finances.
There is no limit to the estate planning vehicles that can be used during the pendency of dissolution proceedings. Virtually everything that can be done outside of dissolution proceedings, can be done during dissolution proceedings, based of course, on the circumstances of the individual. However, there are some basics that can certainly benefit each individual going through a divorce.
• Changing beneficiary designations
• Preparing a statement regarding access to digital assets
• Creating/revising powers of attorney
• Creating/revising a will
• Creating/revising revocable trusts
I. Changing Beneficiary Designations
Changing beneficiary designations is pretty straight forward. Clients may want to change the beneficiary designations of their life insurance policies, individual retirement accounts, land trusts and annuities. Clients may have additional assets which have beneficiary designations which they may want to change, such as transfer on death or payable on death bank or brokerage accounts, land conveyed by a transfer on death deeds and employee benefits. For certain clients, the thought of their estranged spouse receiving these assets, instead of their children or another loved one, strains the senses.
Be aware that beneficiary designations of certain assets, such 401(k)s, 403(b)s and pensions, cannot be changed from the spouse without the spouse’s written consent.
II. Preparing a Statement Regarding Access to Digital Assets
There is a new law in Illinois effective August 12, 2016 named the Revised Uniform Fiduciary Access to Digital Assets Act, 755 ILCS 70/1 et seq., which allows someone to access another’s digital assets. The Act provides a priority system for individuals to specifically control disclosure of digital assets and content of electronic communications.
The definition of digital assets in the Act encompasses a broad range of electronic records, including email, social media accounts and documents stored in the cloud.
Individuals can use online tools established by providers to direct disclosure of digital assets. Online tools currently available include Google’s Inactive Account Manager and Facebook’s Legacy Contact. If an online tool is used it takes precedence over any other method of directing disclosure.
If no online tool is used or one is not available, a statement allowing or prohibiting disclosure can be included in an individual’s power of attorney, will or trust or stand-alone document.
If these tools are not used, the provider’s terms of service will determine who has access, to what information and when. If access is allowed by the terms of service, it will most likely allow access to a spouse, upon certain conditions.
Finally, the Act provides a hierarchy of disclosure based on the type of fiduciary and the type of electronic record sought to be disclosed.
Clearly, if one is going through a dissolution proceeding, taking control of one’s digital assets is paramount. Many clients will not want their spouse, who they hope to soon call their ex, to have access to their e-mails, Facebook or Instagram accounts, financial or banking information, diaries or other personal information. To the extent that any of this is discoverable, the spouse can receive it through the proper channels, but not without the client’s knowledge or control.
III. Create/Revise Powers of Attorney
In Illinois, there are two types of statutory powers of attorney – health care and property. The health care power of attorney allows someone to make health care and personal decisions for another. This includes end of life decisions, organ donation, decisions as to medications, decisions as to where one lives, including placement in nursing homes and psychiatric facilities, and whether a person is buried or cremated. The power of attorney for health care also allows access to medical records.
Most clients will not want their soon-to-be ex to have authority to take any of the above listed actions or have access to medical records. If that is the case, the first step for a client with a power of attorney for health care is to revise it immediately if it names the spouse as agent.
Second, if the client does not have a power of attorney for health care, you should recommend that they create one. Why? If a person has not planned for incapacity, whether short or long term, the law makes presumptions for them. The Health Care Surrogate Act, 755 ILCS 40/1 et seq., provides a priority list of those who can take action, beginning, of course, with the patient’s spouse.
The power of attorney for property can be even more dangerous than the health care power. The power of attorney for property allows someone to manage another’s financial assets. It’s very broad. It allows access to bank, brokerage and retirement accounts. Not only can money be withdrawn, but the named agent can obtain statements, change beneficiaries, gain access to a safe deposit box, execute a mortgage, borrow money and more.
Again, one can see the risk of putting this authority in the wrong hands. If your client has an existing power of attorney for property, it would be wise to have your client either revise the power of attorney for property removing the spouse and adding a truly trusted friend or family member as agent, or simply revoking the power of attorney.
IV. Revise/Create a Will
If your client has a will, it is important that your client consider revising the will. Many couples have wills that leave everything to each other. When someone is going through a divorce, that may be the last thing they want. In such case, the client should revise the will to provide for their children, parents, siblings, charities – any people or organizations they genuinely want to provide for in the event of their death.
That being said, a spouse can renounce the will. If the client dies giving all their assets to someone other than the spouse, the spouse can renounce the will and elect to take a third of the decedent’s estate. But the spouse has to make that election.
In addition, the client should consider changing the executor from the spouse to another individual or a financial institution. The will was probably drafted to provide that the spouses were each other’s executor. The executor is the person who administers the estate – pays the bills, files tax returns and distributes assets. The executor does not need to be the spouse. It’s time to make the executor a friend, family member or financial institution.
The client should also look at the guardian provisions. If the client dies, the child’s other parent will be guardian. But what if the client doesn’t die first or the client dies first but the other parent dies without naming a guardian? It’s also possible that the other parent may not want to be guardian or is not fit to be guardian. The client should name a guardian and successor guardian that he or she feels comfortable having custody of his or her children.
If the client does not have a will, he or she should create one. Without a will, the laws of intestacy provide that if the decedent has no children, the spouse will receive one hundred percent (100%) of the decedent’s estate. If there are children, the spouse receives fifty percent (50%). Compare this with the spouse’s right to renounce the will and receive a third.
In addition, if there is no will, an administrator is appointed to fill the role of executor. The priority given by the probate act for naming an administrator begins with the spouse.
V. Revise/Create a Revocable Trust
An alternative method of disposing of assets is a revocable trust. A revocable trust provides an individual with all the benefits a will provides. An individual can name the beneficiaries they desire to receive their assets. An individual can name their trustee who can handle the administrative matters of the estate upon their death, and also upon their incapacitation.
A benefit to a trust is that a spouse cannot renounce a trust. So if the spouse is not named as a beneficiary, it cannot elect to renounce and receive a third of the assets – the spouse receives nothing.
This only works however, if the trust is funded during the client’s lifetime. This means that the client’s assets are titled in the name of the trust, rather than the client’s name individually. If a trust exists but is not funded, the assets are administered according to the client’s will or according to the laws of intestacy if no will exists.
In conclusion, it is important to remember while advising your divorce clients, that estate planning can be done at any time, even during dissolution of marriage proceedings. Many estate planning vehicles, including those included in this article, can be revoked or amended at any time, whether to comply with a court order, a change of circumstances, or otherwise.