Are you prepared for late-life changes?
According to the 2010 U.S. Census, the country’s 45-to-64-year-old population grew 31.5 percent to 81.5 million between 2000 and 2010. This age group now constitutes 26.4 percent of the population. Additionally, the 65-and-older population now constitutes 13 percent of the total U.S. population. This article addresses issues these individuals face when planning for remarriage, divorce and/or death.
Issues & Consequences
Those who choose to marry or remarry later in life may find that their marriage results in unintended financial consequences. One key issue is to ensure that both their surviving spouse as well as their adult children will be cared for after their death. Similarly, individuals who divorce later in life face important issues, including property division and maintenance. These issues can for the most part be dealt with through a premarital agreement combined with a comprehensive estate plan.
In the event of death, a surviving spouse is entitled to a certain percentage of his or her deceased spouse’s assets if that spouse left no will or provided differently in his or her will. If there is no will, a surviving spouse is entitled to 100 percent of the probate estate if the deceased left no descendants; otherwise, it is half, with the remaining half going to his or her descendants. If there is a will and the surviving spouse wishes to renounce it, he or she is entitled to half of the net estate if the deceased leaves no descendants; otherwise, the surviving spouse is entitled to one third.
In the event of divorce, the Illinois Marriage and Dissolution of Marriage Act governs property division, maintenance and child support. Absent an agreement of the parties, the Act will control how such issues may be addressed in a judgment for dissolution of marriage.
A premarital agreement can effectively define a surviving spouse’s right to property in the event of death as well as property division, child support and maintenance in the event of divorce. The premarital agreement should address retirement plans in connection with the event of death or divorce. However, the terms of the written retirement plan will likely require a written waiver of rights in order to allow retirement benefits to be paid to someone other than a surviving/divorced spouse. Additionally, in the event of divorce, individuals who have been married more than ten years may be entitled to collect Social Security benefits upon the earning record of their ex-spouse, regardless of the terms of any written agreement between the parties.
Elements of an Effective Plan
In addition to a premarital agreement, an effective estate plan includes the following documents:
- Last will and testament. A last will and testament operates to transfer property at death that is in the decedent’s name alone. It does not affect property which is in joint tenancy or which passes by operation of death beneficiary designations on life insurance policies, individual retirement accounts or other assets. Wills are effective only at death and may be revoked at any time prior to death. Upon a testator’s death, the executor appointed under the will generally must pursue formal probate of the testator’s (decedent’s) estate. Probate proceedings, like any other court case, are matters of public record. Thus, an estate plan structured to provide privacy may be preferable to one that utilizes only a last will and testament.
- Declaration of trust. A declaration of trust, also referred to as a living trust or revocable living trust, is a contractual agreement between the grantor and the trustee for the benefit of designated beneficiaries. The trust document provides instructions for the trustee concerning the administration of all property contained in the trust and sets forth the substantive terms of the grantor’s estate plan. Generally, during the grantor’s lifetime, the trust assets are used for the primary benefit of the grantor. The trust generally is fully revocable and may be changed from time to time. Although not required, the trust may be funded during lifetime in order to avoid probate and provide for management of the grantor’s assets in the event the grantor becomes disabled. Unlike a last will and testament, the trust document is not a matter of public record. Accordingly, use of a declaration of trust can provide privacy in connection with administration of a decedent’s estate. The trust may include provisions to minimize estate taxes. Additionally, in the event the grantor leaves a surviving spouse, the trust may include provisions to benefit the surviving spouse and to distribute the trust assets to the grantor’s descendants or other individuals/entities.
- Power of attorney for property. Pursuant to a power of attorney for property, an individual (the “Principal”) gives a designated agent broad authority to deal with the Principal’s assets (other than assets titled in trust) on his or her behalf. The Principal also has the ability to expand or limit the powers specifically set forth in the instrument. For example, the Principal may grant his or her agent the authority to make gifts from assets, if needed, for federal estate and gift tax planning.
- Power of attorney for healthcare. Pursuant to a power of attorney for healthcare, a Principal delegates decision-making authority to his or her agent regarding healthcare services. Absent this authorization, a third party does not have the legal authority to discuss the Principal’s medical condition with a physician, review the Principal’s medical records or make healthcare decisions. The power of attorney for healthcare also may include directions regarding termination of life support.
- Living will. A living will permits an individual to express his or her wishes regarding advanced end-of-life issues, including medical procedures and artificial life-sustaining measures, to his or her physician in a manner which will be legally binding and which will protect the physician from legal exposure. If both a living will and a power of attorney for healthcare are in existence, the power of attorney for healthcare will control. However, if the named agent under the power of attorney for healthcare is unavailable or unwilling to act, then the living will becomes active and will be utilized. Thus, the living will acts as a backup document to the power of attorney for healthcare concerning life sustaining treatment.
As reflected above, there are many issues to consider when approaching a major life change later in life. Proper planning is critical to ensure that the needs of both the individual doing the planning and his or her loved ones are addressed. iBi