estate planning lawyers

Aug 20

Utilizing In-Marriage QDRO’s for Estate Planning

By Jessica L. Estes

As an estate planning and elder law attorney, often the most difficult type of asset to deal with is a retirement account. Not only must you consider the type of account it is, but you must understand the owner’s rights to the funds in the account, as well as the consequences, tax or otherwise, of accessing those funds, which can depend on age and/or other factors. In Maryland, retirement accounts are countable assets for Medicaid purposes, which adds another layer of complication. And, even something as simple as naming a beneficiary for the retirement account is not as simple as it may seem, especially if asset protection is your main goal.

There are many reasons why someone may need to access retirement benefits. Perhaps one’s spouse is in a nursing home and has a substantial retirement account that will have to be “spent-down” before qualifying for Medicaid, but the family wants to preserve those monies for the spouse at home, without suffering a huge tax consequence. Or, perhaps one spouse is older than the other spouse and wants to delay taking required minimum distributions (“RMD’s”), as the couple does not need the extra income and wants to avoid additional taxes.

Many people may have heard the term Qualified Domestic Relations Order (“QDRO”), but only in context to a divorce, and very few understand what a QDRO really is. Simply put, a QDRO is an order signed by an appropriate state court judge that: (1) recognizes the joint marital ownership interest in a retirement plan; (2) provides for the plan benefits between the parties – the plan participant (employee spouse) and the alternate payee (non-employee spouse); and (3) is approved, or qualified, by the retirement plan administrator. Unlike a QDRO in a divorce that transfers retirement benefits to an ex-spouse, an “in-marriage QDRO” transfers retirement benefits to a current spouse.

To be eligible for an in-marriage QDRO, the retirement account must be an Employee Retirement Income Security Act (“ERISA”) based plan, certain state pension plans, or a Federal Thrift Savings Plan. ERISA-based plans include 401k, 401(a), 403(b), corporate pension plans, some employee stock ownership plans, profit sharing plans, and State deferred compensation 457 plans. Plans that are not eligible for an in-marriage QDRO include military pensions, Federal pensions (FERS and CSRS), railroad retirement plans and privately sponsored non-qualified stock plans. Although individual retirement accounts (IRA’s) and simplified employee pension plans (SEP’s) are not immediately eligible, if a limited liability company (“LLC”) was established with a solo 401k, the funds in the IRA or SEP could be transferred to the solo 401k and then qualify for the in-marriage QDRO.

If eligible for an in-marriage QDRO, a review of the plan documents is necessary to verify the amount that may be transferred, as well as the amount that should be transferred based on the family’s needs. Similarly, an inter-spousal agreement must be drafted that is the basis for the justification of the in-marriage QDRO. The inter-spousal agreement should lay out the agreement between the spouses as to the division of the retirement funds. Using the example of the couple wanting to delay RMD’s, the agreement may state that all the retirement account will be transferred to the younger spouse which would allow the funds to remain in the account until the younger spouse reaches age 70 ½. Or, in the case of the couple wanting to qualify for Medicaid benefits, rather than “spend-down” the funds and pay taxes on that money, the retirement funds of the nursing home spouse would be transferred to the spouse still residing at home, which could avoid most, if not all, of the tax consequences and preserve the asset for the community spouse, while allowing the nursing home spouse to qualify for Medicaid benefits.

As you can see, in-marriage QDRO’s can be useful tools for estate planning but require careful drafting and knowledge of the various federal and state laws. Do not attempt this on your own; contact a qualified attorney to assist and help you navigate these complicated rules.

Mar 05

Prenuptial and Postnuptial Agreements – Why You Should Have One

By: Valerie E. Anias, Esq.

There is a misconceived notion that asking for or discussing a prenuptial or postnuptial agreement implies distrust or concern over your relationship and its future. This isn’t true! There are a significant number of benefits gained as a result of a prenuptial agreement, or postnuptial agreement if you’re already married.

There are two ways to dissolve a marriage: divorce and death. Prenuptial or postnuptial agreements help in making the dissolution as easy as possible.

The reality is this: marriage is both a romantic and business relationship. With very few exceptions nearly everything is or becomes marital. As such, nearly everything can become subject of costly litigation in the event of divorce or death. A well drafted and all-inclusive agreement will limit many of these issues. For example, the agreement will identify what is and is not marital property, each parties’ rights in the event of death or divorce, predetermine rights and obligations for spousal support, inheritance, and more. In addition, the agreement will have a complete financial disclosure including each spouses’ assets, liabilities, and income.

A properly drafted agreement will provide a full financial disclosure to both prospective or current spouses. It will list all assets, income, real property, personal property, etc. For example, what if you have your great-grandmother’s engagement ring? You’d want to be sure that said ring would remain with you, your children, and/or your family. If you were to pass, the value of that ring may ultimately be considered part of your estate and have to be divided. That could mean sold.

When contemplating whether you think a prenuptial or postnuptial agreement is needed for you, you should consider whether you want to be on the hook for your partner’s debt in the event of divorce or marriage? Whether you want your spouse from a second marriage to inherit more than your children from their first marriage? Whether you want your private business to be impacted in the event of divorce or death?

Obtaining a prenuptial or postnuptial agreement is simply a combination of planning and protection. Planning for the future of your spouse, children, and yourself while simultaneously protecting your spouse, children, and yourself.

Jan 29

How the Titling of Assets Could Have a Major Impact on Your Estate Plan

By: Jessica L. Estes

The one thing that can mess up even the best estate plan, is the titling of assets. I cannot tell you how many times a client will tell me they have the best trust or best will that encompasses everything from tax planning to creditor protection and disability planning for beneficiaries. For many of them, though, it does not matter how good their documents are if their assets are not titled appropriately.

Often, clients will add a child or other family member to their account so if something happens, that joint account holder can access the funds to pay bills. But what are the consequences of having a joint account holder? First, it is important to understand that a joint account holder is deemed to own 100% of that account, even if they never contribute any money to it. Not only does this mean they can withdraw all funds without your consent, but it also means that their financial power of attorney can control and/or access your funds. For example, if your son is joint on your bank account and he gets into a car accident and becomes disabled or requires long-term care, his power of attorney (likely, his spouse if he has one, or if he does not, a court-appointed guardian), might legally be required to use those funds for his benefit. Even if that does not occur, if your joint account holder files bankruptcy, gets divorced, or gets sued, that account could be garnished or liquidated. And, finally, when you die, that account will automatically pass to the joint account holder, who is under no legal obligation to distribute it in accordance with your will or trust. So, what good was that trust or will?

Similarly, if you name a beneficiary on your bank account – usually referred to as “pay on death” or “POD” – that account, upon your death, will automatically pass to your named beneficiary. Likewise, any beneficiary you designate on an investment account (“transfer of death”, or “TOD”) or a life insurance or annuity policy will also pass upon your death to your named beneficiary. In these situations, neither your will nor your trust will govern who gets your stuff.

Also, if you have an individual retirement account (“IRA”) with a beneficiary designated, that account will pass upon your death to your named beneficiary. This could cause any provision in your documents that would allow the beneficiary to stretch-out the payments from the IRA over their lifetime, to be ineffective and require the beneficiary to receive the all funds within five years of your death.

Moreover, if you have an account “in trust for” or “ITF,” that account belongs to the individual for which the funds are in trust. Because the funds in this account do not belong to you, this account will not be distributed in accordance with your will or trust. Rather, you should name a custodian to take over the management of the account upon your death.

And, if you have a trust, it does not mean your assets are now automatically in the trust. Your assets need to be retitled and the ownership changed to the trust. This will require action on your part to go to the bank or other financial institution and fill out change of ownership forms to have the account retitled in the name of the trust. If you fail to transfer the ownership of the assets to the trust, then the trust will not necessarily govern how the assets are distributed upon your death. Additionally, one of the benefits of a trust is to avoid probate, but if the assets are never transferred to the trust prior to your death, your beneficiaries will first need to go through probate.

So, review your assets and make sure they are titled in a way that is consistent with your estate plan.

Sep 26

#TuesdayTips: The “Simple” Will

All too often will-seeking clients call the firm asking if we do “simple” wills, say they need a will, but don’t want one of those “long wills”, or claim to not have anything, so they just need a “basic” will. Most law firms will respond to the client, “Yes! We can do that!” But there are pitfalls that can arise, some foreseen and some unforeseen, when a person only has a “simple” will, and the client does not even know these potential pitfalls exist. Read More

Sep 12

#TuesdayTips: 529 Plans as Part of Your Overall Estate Plan

It’s that time of year again when the kids head out to the bus stop in the morning to start a new year of learning, eager for what lies ahead. These children aspire to do great things, but with the rising costs of undergraduate education, families need to start saving earlier and the sooner the better. A 529 plan may be the answer and could benefit your estate plan as well.Read More

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