Van Dyck Law

Do I Have to Pay My Spouse’s Loan When He Dies?

“Surviving spouses don't have to repay every debt of a deceased spouse. Here's what you need to know.”

It’s not uncommon for a senior to suddenly find himself the executor of his spouse’s will and have to face debt that was not taken out together.

Let’s say that you’re 67, and your husband passes away suddenly. What if he decided last year that he wanted to explore the open road and took out a $50,000 loan, in his name only, to buy a Class A recreational vehicle (RV) with beechwood cabinets and custom sea glass interiors that sleeps five. You didn’t want it and you can’t afford it. What do you do?

Is the surviving spouse responsible for paying the loan, or can she surrender this behemoth to the bank?

nj.com’s recent article, “My husband died. Must I pay his loan?” explains that whether a deceased spouse's debt becomes the responsibility of the surviving spouse, depends on several factors.

There’s usually spousal liability for debts incurred by the non-debtor spouse only for necessary goods and services, like medical expenses. Therefore, a Class A RV with beechwood cabinets and custom sea glass interiors that sleeps five hardly qualifies. However, the surviving spouse’s options depend on the contracts executed by the late husband and the discussions that his widow is now having with the bank.

Any assets in the name of decedent—like the Class A RV with beechwood cabinets, etc.—or paid into the deceased spouse's estate, would have to be liquidated and used to pay creditors in the order of priority, as determined by state statute

In New Jersey, the law says the funeral director must be paid before any other creditor, followed in order of priority by the other costs of administering the estate, like the court and attorney fees, the office of the public guardian for elderly adults, taxes, medical expenses, judgments and then all other claims.

Any life insurance or retirement funds that are paid directly to a beneficiary, and not paid to the estate of the decedent, don’t have to be used to pay the decedent's debts and expenses, unless the beneficiary is required to pay the debt, as a result of being a spouse obligated to pay for necessaries, a co-signer or obligor or for similar reasons.

However, if the estate becomes insolvent and there’s insufficient funds to pay all outstanding claims, claims within the same priority level must be paid pro rata.

Talk with an experienced estate planning attorney about the specifics of your situation.

Reference: nj.com (August 20, 2018) “My husband died. Must I pay his loan?”

 

Beneficiary Designations are Critical to Estate Planning

“Have you checked your beneficiary designation for your retirement account recently?”

It’s important to review the beneficiary designations on accounts like life insurance, IRAs and pensions.

Investopedia says that outdated beneficiary designations can cause problems in its article, “The Importance of Updating Retirement Account Beneficiaries.” There have been many cases of retirement account owners who have been divorced and remarried but failed to update their beneficiary designations.

If you forget, you may find that your designated beneficiary isn’t who you want it to be. That can frequently be the case in the event of a divorce, remarriage or if new children or grandchildren were welcomed to the family since your retirement plan account was started. If you named a charity as your beneficiary years ago, it may no longer exist.

It is good if you are reviewing your estate plan regularly.  However, remember that retirement accounts aren’t part of your estate and aren’t governed by the provisions of your will, so it is important to keep these retirement documents updated.

Retirement account beneficiary designations are often neglected: they don’t get the attention they need!

Failing to update beneficiary designations can be very frustrating for the family. They’re the ones who will need to go to court to get a legal determination of the true beneficiary. The judge’s decision may not be what the deceased would have wished.

There can also be an issue, if some children are named as beneficiaries, but the document isn't updated to include those who were born after the initial designation. That’s why you should update your beneficiary designation right after any change in family status—and review it periodically, so they never are out-of-date or incorrect. You should always have a contingency beneficiary.

Another option is to draft customized beneficiary designations to address "what-if" situations.

If you don’t name a beneficiary, the beneficiary may be determined by federal or state law, or by the plan document that governs your retirement accounts. For qualified plans like profit-sharing plans, 401(k)s, and money purchase pension plans, federal regulations automatically designate the spouse of the account owner as the beneficiary. The spouse has to approve of any other designation, and this must be in writing and notarized. If the retirement account owner is single, her estate may be the default beneficiary.

An IRA plan's documents also provide a default designation, if the designated beneficiary predeceases the IRA owner. The default options vary among IRA custodians and trustees. While the default options rid any administrative responsibilities from account owners, they may not reflect their preferences. As a result, account owners should review the plan document and be certain that they update their beneficiary designations regularly.

Many IRA plan documents have default beneficiary options, so if you designate two people as your beneficiaries and one predeceases you, the share that belonged to the deceased beneficiary automatically goes to the surviving beneficiary. If you have a customized designation, you can instruct how that portion would be distributed, instead of having it default to the surviving beneficiary.

Making a proper beneficiary designation is a crucial component of your estate planning. Be sure to talk to a qualified estate planning attorney about your beneficiary designations.

Reference: Investopedia (2018) “The Importance of Updating Retirement Account Beneficiaries”

 

David Cassidy’s Son Now Looks to Inherit Much More Than Expected

“David Cassidy‘s son stands to inherit much more than he may have originally expected.”

According to court documents obtained by The Blast, the late actor and musician David Cassidy left his son Beau the bulk of his estate.

That estate was originally valued at just $150,000, minus some substantial debts. However, Cassidy’s estate is now estimated at about $230,000, after debt expenses are paid.  However, there’s more.

People’s recent article, “David Cassidy's Son to Receive Upwards of $1.68 Million—More Than 10 Times Initial Estimate,” reports that Cassidy had a retirement plan which has already paid out $450,000 to Beau. His son will also receive $1 million in life insurance policy proceeds, since he was the sole beneficiary.

When it’s all added up, Beau Cassidy will inherit roughly $1.68 million—which is more than 10 times what the sum was initially reported to be his when his father, the former Partridge Family star, passed away at the age of 67 from organ failure in late 2017.

His daughter Katie Cassidy was omitted from his will. David claimed he was no more than a biological father to her. Cassidy told People several months before his death, “I’ve never had a relationship with her. I wasn’t her father. I was her biological father but I didn’t raise her.”

Nonetheless, Katie was one of the family members who joined to mourn his loss, after he succumbed to his struggles with liver and kidney failure. She credits him with giving her valuable advice about spending a life in the limelight.

“He left me with really great advice. He was like: ‘Don’t ever stop going to class. That’s where you should put your money,’” she told People. “And that’s what I do, and I’ve been able to go from nothing to where I am today and it’s built confidence and self-esteem.”

The actress also admitted to being quite impacted by her father’s final words, writing on Twitter, “My father’s last words were ‘So much wasted time.’ This will be a daily reminder for me to share my gratitude with those I love as to never waste another minute.”

Reference: People (July 18, 2018) “David Cassidy's Son to Receive Upwards of $1.68 Million — More Than 10 Times Initial Estimate”

 

How Will My Retirement Affect My Children?

“Your retirement could have an impact on your children, especially if you plan to move or are helping them financially.”

Baby boomer parents need to add an item to their retirement checklist: having “the talk” with their kids about how their lives will change in retirement.

US News & World Report’s recent article, “The Talk to Have With Your Kids Before You Retire,” acknowledges that this can be uncomfortable for some parents.  However, parents need to prepare adult children for their impending retirement. It’s crucial to begin financial discussions early in retirement. That makes it easier in later years, when cognitive decline can affect decision-making. Talk with your children about these things regarding your retirement:

Notice. Your retirement may affect your children, especially if you plan to move or are assisting them financially. Let them know of your retirement plan five years prior to leaving the workforce, and remind them about it every now and then.

Financial info. Some parents don’t want their kids to know the details of their finances, while others share information and even involve them in the process. If you’re more open and honest with your kids about your financial information, they’ll feel secure that their parents are OK. If you are struggling, you should also let them know that.

Financial support. You may need to stop supporting your kids, so that you can retire. If you have a kid living with you in the house and you’re helping to pay their bills, start working on a strategy to get them off your payroll and out of the house.

Estate plan. Talking to your children about your estate planning to avoid confusion and sibling rivalry during a very stressful time. Talk about which child will be executor, so there are no surprises.

New lifestyle. An important discussion between parents and children is how you want to live. This includes location, which might change with the seasons, deciding if you want to live close to children and grandchildren, or prefer a spot with opportunities to enjoy retirement. You should also let your kids know your preferences for an assisted living facility or a nursing home and discuss paying for long-term care.

Contact info. If a child is named as an executor, successor trustee, or as a beneficiary on retirement accounts and life insurance policies, be sure he knows who to contact, if something happens to you. You may want to give your children a list of the people and institutions involved in your planning, including your estate planning attorney.

Reference: US News & World Report (June 8, 2018) “The Talk to Have With Your Kids Before You Retire”

 

Remarriage Reminders

“Whether you are remarrying after a divorce or the death of a spouse, it is important to enter your new marriage with smart financial planning.”

There are many questions that need answers when you remarry. One key question is how you’ll handle your current financial needs and future financial wishes, says Investopedia in the article “Second Marriage Financial Matters to Consider.”

Let’s look at some topics of concern:

Assets and Liabilities. Do a complete review of both of your assets and liabilities. Assets include bank accounts, stocks, bonds, house, cars, retirement plans, insurance contracts and other investments. Liabilities are things like your credit cards, student loan debt, car loans and mortgages. In addition, note that there are rules in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), where asset ownership is treated differently: in these states, the law presumes that assets will be owned jointly.

Daily Financial Management. You should next think about how’ll manage your financial obligations on a regular basis. Some couples combine their checking accounts, and some keep separate checking accounts.  However, you should create a new joint account, into which both parties make a monthly contribution. Joint expenses are paid from the new account, and other personal expenses are paid with individual accounts.

Beneficiary Designations. Your retirement plans—like your IRA and 401(k)—have named beneficiaries. These should be checked regularly.  The same thing should be done with your insurance policies and annuities. This is the perfect time to review who is currently designated, because any agreements from your first marriage may potentially inhibit your ability to update your beneficiaries. They should also be reviewed.

Update Your Estate Plan. A will states your final wishes and details how certain property will be distributed to your heirs. It also designates guardians for minor children and your executor, the person you nominate to make sure your wishes get carried out. It is an excellent time to review your will, to see if you should execute a new one or modify the existing one. Blended family dynamics can also have an impact when reviewing your estate plan. If either spouse has children from a previous relationship, adjustments to your plan may be necessary.

Trusts and Trustees. Ask your estate planning attorney about trusts, like a bypass trust, a qualified terminable interest property (QTIP) trust, or a spendthrift trust. One of these or another kind of trust may be a useful way to transfer wealth to children, while imposing some restrictions. Dividing your assets between a surviving second spouse, the children from that marriage and any children from a prior marriage may result in some tension. One way to avoid this is to give an independent trustee the ability to make adjustments, so everyone is treated fairly and according to your instructions.

Thoughtful planning will let you meet your family’s fiscal needs and create a strong financial future with your new spouse.

Reference: Investopedia (May 29, 2018) “Second Marriage Financial Matters to Consider”

 

Don’t Let Money Stress You Out of Your Relationship!

“Statistics show that finances are the leading cause of stress in a relationship, and more than 35 percent of the population name money as the primary trouble area with a partner.”

My Primetime News published a story last week, “Hearing Wedding Bells? Be Sure Finances are Included in Your Planning,” by Gerald Rome, Colorado Securities Commissioner.

Rome notes that summer is wedding season. Whether you’re taking the plunge later in life—maybe for the second time or advising a young couple about to make the ultimate commitment—much of the thought process is the same. There’s perhaps no topic less uncomfortable, but more important, than finances.

Before you or a loved one say, “I do,” be sure to consider the following:

Transparency. Many divorces stem from a lack of honesty about finances. Before you walk down the aisle, be sure you know everything about your betrothed’s financial past, spending habits, investing philosophy, and goals for the future. That means sharing information on major debts from education, business, and home loans, as well as credit scores and bankruptcy history. If you’re entering a second marriage, be truthful about any alimony being paid to or received from a former spouse.

For those marrying later in life, think about how or whether to merge accumulated assets and how to compromise on handling financial affairs, after what may have been many years of individual decision-making.

Financial Roles. For co-mingled finances, it’s important to be certain that you’re clear on who will handle what. Many financial issues that arise later in life, are due to one spouse not knowing what’s going on and being deluged with a mountain of new information and decision-making, in the event of a spouse’s sudden illness or death.

Prenuptial Agreement. Detailing what will happen to assets, if the marriage fails, isn’t about a lack of trust—it’s about being prepared.

Estate Planning. Organize your property to ensure that no matter what happens, your family’s financial needs will be met. This includes drafting powers of attorney, creating or revising your wills, purchasing life insurance policies, revisiting retirement accounts and investment funds, establishing trusts and naming beneficiaries and considering any tax implications.

An honest and sometimes difficult financial conversation isn’t something to which we look forward. However, couples who avoid this, because they’re love-struck and blind to what the future may hold, will regret it later. Work with an experienced estate planning attorney and plan now.

Reference: My Primetime News (May 2, 2018) “Hearing Wedding Bells? Be Sure Finances are Included in Your Planning”

 

When to Update Your Estate Plan? How About Right Now?

“Have you wondered when is the right time to update your estate plan?”

If any of the following five items have happened in your life, you need to reevaluate your estate planning documents: birth, death, marriage, divorce or a big change in your financial status.

The FDL Reporter recently published an article, “Best reasons to update estate plans include marriage, divorce, move, birth.” It discusses these life events and how they can impact your estate planning.

Marital Status. A change in your marital status definitely requires significant changes to your estate plan. If you've recently married, state law on marital property will now apply to the division and distribution of your estate upon your death. If you've recently divorced, your estate plan should be updated to see that your ex is removed as a beneficiary and fiduciary, as well as any of his or her relatives.

Financial Status. If you're fortunate enough to have won the lottery or received an inheritance, you need to look at your existing estate plan to see that it still satisfies the needs of your now larger estate. If the opposite has occurred and your estate has declined in value, you also need an estate plan review.

Birth or Death of a Beneficiary or Fiduciary. You need to remove the individual's name.  However, if a spouse has died, your plan may need a complete overhaul. If you or a beneficiary have adopted or had a child, you need to add that child.

A Move to a New State. This is one of the most overlooked reasons to update your estate plan. Every state has different probate, tax, and estate laws.

Time Passes. If your beneficiaries were younger when you created your plan, consider their status as they get older. They may now even be ready to take on the fiduciary roles in your estate plan, like power of attorney for finances and health care, or even as the Personal Representative of your Will. Your estate planning documents should reflect the changes brought by the passage of time.

Reference: FDL Reporter (April 24, 2018) “Best reasons to update estate plans include marriage, divorce, move, birth”

 

Financial Reminders Before Remarriage

 “Getting remarried gives people a fresh start, an opportunity to learn from the past and to move forward. Unfortunately, for most couples, the next trip down the aisle can also come with a host of new financial challenges.”

Nasdaq’s recent article, “Getting Remarried? 5 Financial Steps to Take Before Tying the Knot (Again)” provides some financial steps to consider before getting remarried.

Create a consolidated net worth statement. One fundamental mistake many couples make is failing to look at their combined net worth, until they start talking about how they will pay for their wedding or another big-ticket item. Those who remarry frequently have more complex financial responsibilities, such as child support, liquid and illiquid investment assets, as well as estate planning and tax-planning strategies. The best course is to be upfront from the start to avoid damaging your relationship in the long run. Take time to review your individual financial situations, including liabilities, before you create a consolidated statement of net worth.

Sign a pre or postnuptial agreement. This can be uncomfortable but can be valuable for both parties, if there’s a divorce. A pre or postnuptial agreement is particularly important, since it's the only way to legally claim specific assets within a marriage. In addition, a prenuptial agreement may ensure that any children within the marriage are financially protected, in the event one spouse dies. It’s also important to remember, even if you're recently married and don't have a formal prenuptial agreement, state law will often have one for you.

Think about all of your kids. Some spouses who were married previously may bring children into their new relationship. This creates many financial issues. Determine as a couple how you’ll financially address major expenses, like health care, child care, and tuition. When you've decided, discuss your plan of action with an attorney to be sure you're considering all potential options and their long-term implications.

Update your beneficiary designations. This is a common error. Assuming you want to name your new spouse as a beneficiary, you should review all your accounts and update the documents.

Update your estate plan. Estate plans can be forgotten with all of the details of a wedding. Talk with an experienced estate planning attorney to review your situation and update or create wills, powers of attorney, and health care directives to be certain that your new spouse, or another trusted person, has the decision-making authority that reflects your wishes.

Reference: Nasdaq (April 20, 2018) “Getting Remarried? 5 Financial Steps to Take Before Tying the Knot (Again)”

 

Lady Who Killed Husband Can’t Get His Pension, Court Says

“A woman who stabbed her husband while he slept but was later found not guilty by reason of insanity, isn’t entitled to receive surviving spouse pension benefits.”

A woman judged insane at the time she stabbed her husband is not entitled to pension benefits as his surviving spouse, the U.S. Court of Appeals for the Seventh Circuit recently held in Laborers’ Pension Fund v. Miscevic.

Bloomberg recently published an article, “Woman Who Stabbed Husband While He Slept Can’t Get His Pension.” The article noted that the Employee Retirement Income Security Act (ERISA) generally would require the pension plan to pay the benefits to the woman, because she was the surviving spouse.

However, Illinois has a “slayer statute” that bans a person from financially benefiting from the murder of another.

The federal court of appeals ruled that ERISA doesn’t preempt Illinois’ slayer statute. The Seventh Circuit agreed with the courts that have held that ERISA doesn’t preempt state slayer laws in North Dakota, New York, and Nevada. Most states have adopted these statutes, but the U.S. Supreme Court has chosen not to address the issue at least twice.

The Seventh Circuit noted that the notion that an individual who kills a plan participant can’t recover plan benefits, “is a well-established legal principle which predates ERISA.”

The Seventh Circuit also rejected the woman’s argument that the Illinois state law didn’t apply to her because she was found not guilty by reason of insanity.  However, based on a decision by an Illinois appeals court, the judges held that the Illinois slayer law does apply to bar recovery by individuals who commit a killing but are found not guilty of murder by reason of insanity.

What exactly did the woman do? She intentionally stabbed her husband in his sleep, then she intentionally hit him with a bat to keep him from calling the police, the judges said.

Although she was not able to understand the criminality of her conduct, she intended her actions, the Court of Appeals said.

Judge Joel M. Flaum issued the opinion, which was joined by Judges Michael S. Kanne, and Ilana Diamond Rovner.

Reference: Bloomberg (January 29, 2018) “Woman Who Stabbed Husband While He Slept Can’t Get His Pension”

Suggested Key Terms: Estate Planning, ERISA, Pension, Probate Court, Beneficiary Designations

Understand the Complexities of Remarrying Later in Life

“Remarrying later in life can create several complex financial, legal, and emotional matters that should be addressed.”

About a third of U.S. residents ages 15 and older have been married at least twice, according to the U.S. Census Bureau, and remarriage among Americans ages 55 and older is increasing. At the same time, younger people are becoming less likely to have remarried.

The Flagstaff (AZ) Business News recently published an article, “Financial Issues to Consider in Remarriages,” which suggests that you should be candid about your financial situation. Couples who are marrying for the second (or third) time frequently have financial baggage. You should eliminate issues later in the marriage by having open and honest discussions about assets, debts and obligations. Think about the following questions to get the talks started:

• What financial obligations are we bringing to our marriage?
• How are our credit scores?
• Do we have financial obligations (alimony, child support) to our ex-spouse(s)?
• Do we want to pool our finances?
• Where will we live?
• How will our marriage impact college financial aid for our children from previous marriages or relationships?

It is also important to update life insurance, medical directives and beneficiary designations. If you don’t do this and you (or your spouse) die, part of your estate could go to a previous spouse. If you and your spouse have living wills, health care powers of attorney or healthcare directives, review them with your estate planning attorney to ensure that these documents reflect your current wishes.

You should also consider how remarriage affects your retirement planning, like the benefits your partner may be receiving. These can include a deceased spouse’s social security benefits or pension payments.

Discuss estate planning with your attorney because subsequent marriages can impact estate plans—a common concern among older couples. An older couple is more likely than younger newlyweds to bring property and other valuables into the relationship. They often may want these family valuables to go to their own children from a prior marriage.

Beginning again with a new partner is exciting, even when the new marriage introduces complex financial considerations. Talking to each other, as always, is the key to long-term success.

Reference: Flagstaff (AZ) Business News (October 26, 2017) “Financial Issues to Consider in Remarriages”