Tuesday, March 21, 2017

Divorced Business Owner Sets Up Estate Plan for Minor Children

I was working with a divorced business owner recently. His financial advisor recommended that he come see me. The business owner had been very successful in business, but he knew little and had no previous exposure to estate planning.

It was kind of funny when he said he wasn't sure what he needed from me, but he knew he needed to do something to protect his estate. I started a conversation by letting him know what would happen if he died with no legal plan in place.

I told him, "If you die with no legal program in place, then all of your assets left in your name alone will be frozen. Your ex-wife will hire an attorney to start the probate proceeding. Your ex-wife will kick your fiancé out of your house. After several months or years of court proceedings, your ex-wife will start to gain control over all of your assets, including your businesses. Your business partners will have to co-own your businesses with your ex-wife. Your ex-wife will have the right to hire another set of business attorneys to search and review all of your business records. One of our local elected judges will be in charge of over-seeing how your ex-wife is handling everything on behalf of your four minor children. Ultimately, if the court proceedings ever end, your ex-wife will gain complete control over your estate. If she does not pay the $1.5 million estate tax bill within nine months after you die, interest and penalties will accrue against your estate. Then, as your children reach their 18th birthday, they will sue your ex-wife who will be forced to dump roughly $2 million into your children's laps, likely spoiling any desire they may have to get a good college education."

He said, "That would not be good for my four kids, my fiancé, my business partners, or my ex-wife. I don't think my ex-wife would be the best person to handle my children's inheritance."

About an hour later, after much discussion about his family, he was anxious to put in place an estate plan so that, when he dies, the right people will be put in charge of managing his estate. Probate will be avoided so the courts and judges and lawyers would be kept out of his estate. He designated a trusted and responsible colleague to handle the trusts for his four children so nothing would be dumped into their laps at age 18. His children would have money available to them for their college education, and they would receive their inheritance in stages at later ages. Plus, we set up the trusts for his four kids so that if they get married and divorced, they will not have to split the inheritance with their spouse.

We also had a discussion about the estate and gift tax. He was surprised to learn that if he stayed single, then only $5.49 million of his estate would escape the 40% estate tax. But if he gets married, then through the appropriate use of the marital deduction and portability, he could protect $10.98 million from the 40% estate tax.

Bottom Line: If you are divorced with children, and you don't want your ex-spouse to control everything when you die, and if you'd prefer that what you've worked for doesn't get dumped into your kids' laps at age 18 (after being overseen by judge until then), then perhaps you should give us a call at 925-400-7753.  We can have a conversation so that you can sleep well at night knowing all of your estate legal affairs are in order.

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