Articles

Is Your Estate “Divorce-Proof”? by Sandi Perez


Posted on March 20, 2014 by Sandi Perez

Proper estate planning requires more than allocating money and other assets to beneficiaries in the event of one’s death. It also demands ongoing planning and thorough analysis of a series of “what-if” scenarios that address potential life events, such as marriage, divorce, childbirth and death, that can affect the way in which one’s wishes are carried out.

In today’s sophisticated world, an estate plan is a must, and the majority of individuals will have some form of trust to protect assets, intended for future generations, from creditors. However, many do not think of their spouses as potential future creditors.

The reality is that the majority of marriages end in divorce and therefore must be a consideration during the estate planning process, as unspeakable as it may seem at the time. When trusts are drafted, if little thought has been given to the effect a potential divorce or separation may have on these “protected assets,” rest assured they will become subject to attack and on the table for equal division between the parties. Vulnerabilities will be explored, exploited and used as leverage in settlement negotiations.

To plan properly, grantors creating trusts should consider the following scenarios during the estate planning process.

What if the grantor gets divorced? Will the assets of the trust be subject to equitable distribution? How will the appreciation and income earned on those assets be treated? Florida case law has very specific rules in relation to whether or not asset appreciation is included for distribution in a marital dissolution.

Similarly, what happens in the event one of the grantor’s children, a named beneficiary, gets a divorce? Will the grantor’s ex-son-in-law or ex-daughter-in-law get a piece of a family business that was meant to be protected under the trust?

When a grantor names his or her spouse as trustee and they later separate and begin the divorce process, are there provisions in the trust to remove the spouse as trustee, either automatically or otherwise? If not, will the trustee/spouse have full discretion to control and manage the assets, income and distributions, during and potentially after the divorce?

If the grantor remarries, could the trust provisions, if not revisited, allow the new spouse to benefit before the children of the first marriage? Could the children of the new spouse be entitled to benefit from the trust and potentially dilute the interests of the grantor’s children?

As in any legal proceeding, these are not clear-cut black and white issue. However, to answer these questions and eliminate any gray areas that may arise as consequences of unintended or unplanned life events, grantors should get in the habit of reviewing their estate plans on a regular basis of every two to five years. Best practices dictate that grantors hire board certified family lawyers to review the trust and estate language from a family law perspective and work together to ensure that they address any unintended scenarios. With these efforts, grantors can maintain consistency across all of their estate planning tools, maximize the power of their trust instruments and ensure that the leave behind the legacy they intend.

The Family Law Services practice of Berkowitz Pollack Brant has extensive experience working with families, attorneys and the courts to defend and challenge trusts and estate plans.

About the Author: Sandi Perez, CPA/ABV/CFF CFE, is director of the Family Law Forensic Services practice with Berkowitz Pollack Brant. For more information, call (954) 712-7000 or email info@bpbcpa.com.