Lamar, Khloe & the Urgency of Estate Planning
1st Nov 2015
> Estate planning documents should be reviewed or prepared immediately upon consideration of divorce or any other significant life event.
> Divorce does not affect estate planning documents upon filing, only when the divorce is final.
> With proper planning, unintended consequences and litigation can be avoided.
Former NBA and reality TV star, Lamar Odom, was found unconscious on October 13, 2015, and remains hospitalized in Los Angeles. Odom and his wife, Khloe Kardashian, had been separated for years and were in the middle of a divorce that had not been finalized, allowing his estranged wife to serve as his health care agent and remain potential heir to his estate. According to reports, Kardashian has requested that the divorce be withdrawn and has refused to let Odom’s father visit him in the hospital.
Odom’s situation highlights the urgent need for anyone who is considering or has filed for divorce to immediately review and update his or her estate planning documents. Failure to have current estate planning leaves the spouse in place to make decisions regarding the individual’s health, including if and when to terminate treatment, transfer assets and inherit the estate. With proper, updated estate planning, such unfortunate circumstances and potential conflict and litigation amongst family members can be avoided.
Existing Estate Planning Documents
When an individual is considering divorce, his or her estate planning is likely to be low on the list of priorities. However, divorce is one of those significant changes in your family situation that should trigger an immediate review of your existing estate planning documents or preparation of documents if you do not have an estate plan.
The effect of a divorce on existing estate planning documents is determined by state law. In many states, an ex-spouse is deemed to have predeceased the creator of a Will or Revocable Living Trust, but not other types of trusts or designations. However, the laws do not affect the documents upon filing for divorce, only when the divorce is final. Since a divorce can take years to finalize and, as evidenced by Odom’s situation, a lot can happen between the decision to divorce and when it is final, state law should not be relied upon and estate planning issues should be addressed immediately as soon as a divorce is being considered.
No Estate Planning
A spouse who does not have existing estate planning documents should have similar concerns regarding unintended results to one who has outdated documents. In addition to the spouse inheriting the estate under the state’s laws, a health care provider will look to the spouse first to make health care decisions in the absence of a Health Care Power of Attorney, regardless of whether a divorce has been filed for.
In Odom’s case, it is unclear whether he and Kardashian had estate planning documents in place, but absent updated estate planning documents, the spouse is the default agent for health care decisions and an heir to his estate in the event of his death. In a vast majority of divorce cases, it is unlikely that one spouse wants the other to continue making financial and health care decisions on his or her behalf in case of incapacity or inherit the estate in case of death, but this is not assumed under the law and must be properly reflected in the individual’s estate planning documents.
Elective Share Can Trump Your Will
Having a shortcut estate plan, such as a simple Will, can backfire if a spouse dies before the divorce is final. In most states, a surviving spouse may renounce the Will of the deceased spouse and instead take an “elective share.” The elective share is a fraction, percentage or amount of the deceased spouse’s estate to which the surviving spouse is entitled in order to prevent an individual from completely disinheriting the surviving spouse. In Illinois, the fraction to which the surviving spouse is entitled is one-half of the probate estate if the decedent left no surviving descendants and one-third of the probate estate if the decedent did leave surviving descendants.
In other words, assume that upon making the decision to divorce, Odom revised his Will to leave everything to his children from his previous relationship. If Odom dies before the divorce is final, Kardashian could take the elective share and still receive a significant portion of Odom’s estate, despite his intention to disinherit her.
Trust assets, on the other hand, are not included in an individual’s probate estate. Thus, proper advice and planning can ensure that the deceased spouse’s assets pass in accordance with his or her wishes rather than by the elective share exception. As is the case with most families and relationships, the scenarios, intentions and planning options should be thoroughly discussed with an experienced estate planning attorney to understand all possibilities.
Updating Beneficiary Designations
A review of beneficiary designations should be a part of every estate plan, but it is especially important in situations where divorce is being considered or has been filed. Unlike designations in Wills, Revocable Living Trusts and Powers of Attorney, the designation of a spouse as beneficiary of a life insurance policy or account is not automatically revoked upon final divorce. Therefore, beneficiary designations on all policies and accounts must be reviewed when the decision to divorce has been made.
Assuming that Odom has a life insurance policy or retirement account on which Kardashian is the designated beneficiary, those designations will continue to apply if Odom passes away prior to updating them. Titling of assets and updating of designations is an important, yet too often neglected, part of your estate plan. Upon preparing an estate plan, your attorney should provide you with the specific language necessary to correctly designate primary and secondary beneficiaries for your assets.
Communicate With Your Estate Planning Attorney
Odom’s situation is a great example of the need to revisit your estate planning documents upon divorce because estate planning affects, and is affected by, changes in your family and financial situations. One of the primary goals of estate planning is to ensure that your estate is administered in accordance with your wishes rather than the laws of the state or the terms of outdated documents. When divorce is involved, this goal becomes even more important. For comprehensive advice that takes all of your family and financial situations into consideration, it is important to have an ongoing relationship with your estate planning attorney.
- Annual Gift Tax Exclusion (25)
- Asset Protection (27)
- Avoiding Probate (50)
- Beneficiary Designations (34)
- Crummey Notices (13)
- Divorce (31)
- Elective Share (6)
- Gifting Strategies (38)
- Irrevocable Life Insurance Trust (21)
- Irrevocable Trust (22)
- Joint Accounts (12)
- Legal Relationships (28)
- Minimizing Estate Tax (42)
- Minor Children (17)
- Outdated Documents (41)
- Powers of Attorney (1)
- Same-Sex Couples (3)
- Special Needs Trusts (2)
- Unmarried Couples (11)
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