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.

How to Protect an Inheritance from Children’s Divorces

I am working with several couples right now who want to make sure that their children do not lose their inheritance if the children get divorced.

None of the children are are married yet, but some have "significant others", and the couples anticipates that a marriage may coming up in the near future. They fear that one of their children will continue to invest in their spouse's business.

We discussed the options that are available to the couple. We are setting up their estate plan so that when the children inherit, they will inherit in a trust - we often call this trust the Children's Inheritance Trust.

By having the couple leave their estate to an Inheritance Trust for the benefit of their children, they help ensure that the inheritance will be kept separate from any community property that the child may acquire with their spouse. If a child subsequently gets a divorce, the child will keep their trust truly separate - because the trust will not have been commingled with the assets that the child acquired with their spouse.

Many families these days have divorce circumstances. If you want to set up an estate plan so that your children's inheritance is protected, give us a call to start a conversation about the easiest ways to protect what you've worked so hard to build. You may also feel free and visit our website for a free report entitled California Legal Strategies to Protect Your Family’s Inheritance from Divorce, Creditors, and Lawsuits.”

Top 5 Reasons to Plan Your Estate

Let’s face it, we rarely believe that something will happen to us this year..but what if it did? Are you confident in what the outcome will be for the people that you love the most?

There are plenty of reasons to plan your estate now. I have listed five of the top reasons below. Although numbered, they are in no particular order of importance because everyone has different priorities and concerns.

If anything on this list strikes you as a concern, imagine the effect on your loved ones if you fail to take action. This should inspire you to make a firm to commitment to resolve this as soon as possible. Pick a date this year in which you will commit to competing your estate plan, and stick to it!

Okay, here are the top 5 reasons…

1)      Protect your family in the event of your incapacity. Without a properly drafted estate plan, your family will likely have challenges in managing any assets in your name, including your home. A court supervised conservatorship (otherwise referred to as a living probate) in which all of your transactions are recorded and affirmed through a series of court hearings will generally be required.  This public process goes on indefinitely, and requires your family to convince a judge (and in some cases even a jury) that you are unable to manage your own finances.

2)      Make your wishes known regarding distribution of your assets in the event of your death. Without an estate plan, any assets left in your name alone at your death will be left up to state law, and the probate court system, to determine who will receive those assets. 

3)      Avoid the delay and expenses of probate, and keep your affairs private with a living trust. Even if you have a valid will at the time you pass away, a court supervised process called probate will be required to inventory everything that you own and approve its distribution to your beneficiaries (spouse, children etc). The probate process is a public process in which anyone can review your probate file and determine what you have, who is scheduled to receive it, and when. Especially in today’s society, many people prefer to protect their loved ones by keeping their affairs private, which can only be accomplished through a properly drafted (and funded) living trust.

4)      Protect assets and keep them in the family.  Many people are concerned that property left to a child will be inherited by his or her spouse if that child were to die prematurely, or if the couple were to divorce. Leaving property to a child in trust helps ensure that those assets are kept separate and pass according to your wishes (i.e. to grandchildren).  These trusts may also protect asset from creditors if a child is ever involved in a lawsuit (business or personal) or collections effort. 

5)      Protect minor children by designating a guardian. Parents with minor children must ensure that they can decide who will raise their children if they die before those children become adults. Without a proper estate plan, a judge will make that decision under his or her own discretion. 

Estate Planning to Protect the Kids

This Wall Street Journal video highlights a couple of reasons why parents with minor children need a will, and should consider a trust. It also provides support concerning the need for life insurance as income replacement to fund the children's needs through young adulthood. Excuse the brief commercial at the beginning.

Estate Planning Video for Parents

This interview with a colleague of mine was featured on the Today Show last spring. It is a worthwhile 4 minutes for any parent.



Nicely done Alexis!