Estate Planning for Dummies (or Divorce Lawyers Like Me)

By Julia Leveridge, AAML

Let me start this article by saying that none of our AAML Fellows are dummies. However, I am willing to bet that most of us are guilty of not taking care of ourselves in the many ways we advise our clients to do so, whether that be taking time for ourselves, limiting social media or seeing a therapist. I am certainly guilty of that! I routinely advise my clients at the end of their dissolution or divorce case to consider making changes to their estate planning documents. I frequently refer them to one of my partners, Steven Rowe or Michael Ferguson, when they are in my office for their final hearing. However, despite having three lawyers in my office who practice estate and probate law, I had not done this for myself. What was I thinking? How easy is it to walk up to the third floor of my office building to start this process? Yet, when I knew I would be heading overseas for a vacation this month, I forced myself up those two flights of stairs to redo my will and discuss setting up a trust for my daughter. Many of you reading this have met my daughter, Evelyn, and while both smart and wonderful, I think we can all see the “wild child” in that one! Giving her my estate at the rip old age of eighteen would be about the worst thing this mom (now in my 50s) could do if I died unexpectedly.

I met with my partner, Michael Ferguson, and our associate last week. I came prepared with the name and contact information for my executor, trustee and guardian and possible successors. I was not prepared for a lot of the questions they had for me. First, I learned that what I wanted for my daughter was a “HEMS trust.” This is a type of trust that limits a trustee’s ability to distribute funds to a beneficiary for his or her Heath, Education, Maintenance and Support. The scope of the HEMS trust is broad and covers a wide range of expenses, including medical care, tuition, housing and everyday living costs, but maybe not Taylor Swift tickets – unless it is for educational purposes, which in this house, is debatable. The benefits of a HEMS trust include providing beneficiaries protection from their creditors and potentially divorce settlements. By creating a HEMS trust, the assets held within the trust are less likely to be included in the beneficiary’s taxable estate which provides significant estate tax advantages.

I learned from my estate planning colleagues that there are a lot of potential trust provisions to consider. First, at what age or what life event should my daughter receive an outright distribution, i.e. age 30, graduation from college? Secondly, should a no-contest clause be included? Basically, if one of the beneficiaries contests the trust, then he or she is out of trust as beneficiary. That sure sounds harsh and not really applicable in my situation. There is also a default-takers clause to consider. This means that if the beneficiary dies before all of the assets in the trust are distributed, then the trust assets would go to the closest living relative or a charity pre-selected by the trustee.

I then have to figure out how to get assets into this trust. There are three ways to do that. First, do it now by transferring title or an asset into the trust with a memorandum or certificate of trust. An example would be transferring the deed to my home into this trust. The next way is to transfer an asset to the trust at death, such as payable on death account to the trust. Finally, you can transfer assets to your trust via your will, which is the least desirable because an estate will have to be opened with the probate court.

Of course, I was concerned about getting all of this done quickly before my trip since I had left my entire estate to my now ex-husband. But rest assured, Ohio, like most other states, has a law that automatically revokes bequests to a former spouse in a will and in non-probate assets like life insurance and retirement accounts. However, be sure to remind all of your clients to update their estate planning after a divorce and change the beneficiary designations on all accounts.

And now, I can start packing my bags … hopefully, I return from Ibiza in one piece! If not, Evelyn will surely end up in Ibiza in her 20s.