Category: Estate/Financial Planning

Estate/Financial Planning/Legal Separation/Divorce

Mind Your Beneficiary Designations

“Beneficiary designation” is a mouthful.  It’s the kind of phrase that registers mainly as something you’ve heard before but not as a readily discernible “thing”.  What it refers to is a choice you make for who will receive proceeds from an account when you die, and it’s something you’ll want to keep current.

Often, if folks are married, they’ll designate their spouse as the beneficiary of an account:  a bank account, a retirement account, a life insurance policy, etc.  Folks might even update their designation during marriage to make their spouse the beneficiary.  The advantage of a beneficiary designation is that it tells the financial institution who should get the account, and a court doesn’t have to be involved.  (This is why accounts that pass according to a beneficiary designation may be called “non-probate” assets.)

When folks divorce, they may think about updating their will.  But, accounts with beneficiary designations might not get the same attention.  For some folks, Washington law can keep a former spouse from receiving a benefit:  Washington law automatically provides that, if a marriage ends, a beneficiary designation of a former spouse is revoked unless there’s express provision otherwise or unless a court order requires a beneficiary designation to stay in place.

However, for benefits that come through an employer–such as a retirement account–Washington law doesn’t matter.  Federal employee benefit law controls the outcome and there isn’t an automatic revocation of a beneficiary designation upon divorce.  For accounts of this type, that can have a huge financial impact.  In the Estate of Lundy, the unchanged beneficiary designation made the difference between almost $500,000 going to the former spouse of the Decedent, rather than into his Decedent’s estate.  Take home lesson:  Mind–and update–your beneficiary designations.

Divorce/Estate/Financial Planning/Legal Separation/Divorce/Marriage/Money

What’s Yours is Yours

One of the things that I find (incredibly) nerdily interesting about my work is the concept of the character of property.  In Washington, most property is either separate property or community property.  (I’ll spare you the “quasi-community” property and the legal nuances that arise when parties move to/from a community property state from another state.)

Legally, there’s a presumption that what you acquired before marriage (either as an asset or debt) is your separate property or obligation.  When you marry, or in certain cohabitation circumstances, the legal presumption changes and the law begins to think of folks as a financial team.  Property that’s acquired is assumed to be community property; debt that’s acquired is presumed to be community debt; and the name that something is in is not the “last word” as to the character of the property.  These ideas, “Community Property 101”, if you will are key concepts for my pre-nuptial, divorce, and estate planning clients, as the character of property determines where the financial focus is in a divorce and what you have control to give away in a will.

A line I’ll often throw out is this:  “What’s mine is yours” is the opposite of the concept of separate property.  If it’s “mine”–my separate property–then it’s likely going to stay mine unless there’s a clear indication that I wanted to change that.  While “what’s mine is yours” may be a romantic notion, it’s not how the law sees it.

To that end, I thought that this piece on CNN Money was both clear and helpful.  The piece is primarily a response to the question of “if I marry my boyfriend [will] his student loan debt [become] mine too”?  The short answer is “No”.  Debt acquired before marriage?  That’s separate debt.  The longer answer is very thoughtful, though, as there will be impacts on the marital community from the existence of the debt.  In other words, while the debt is a separate debt, they’ll share its impact.

Estate/Financial Planning/Legal Separation/Divorce/Money

Change, and Willpower

My latest “read”–an audio book, actually–has been “Willpower” by Roy F. Baumeister.  Published in 2011, it’s a book about the science behind controlling yourself.

I’ve taken two of Baumeister’s lessons to heart, and passed them on to clients.  Namely, (1) we humans have a limited supply of willpower, and (2) we draw on the same supply for everything we do.  This was interesting but not great news for me, as it sounds like it’s going to be a tall order to get keep myself on track for marathon training, to increase the frequency of my financial tracking (see this post for why), and to try to cut the coffee shop scones from my diet.  It was also an “aha!” moment, as it explained why the self-improvement symphonies I’d composed in college never worked, and why a single-minded focus on getting to law school graduation did work.

One of the things that I like about the work that I do is that nearly all of my clients are changing some aspect of their lives.  Pre-nuptial clients are getting married.  Other clients are divorcing.  Financial coaching clients are sick of having debt and/or not knowing where their money goes.  For all of these clients, though, this book suggests that there are limitations around the willpower we have for change, in addition to the more apparent limitations of time and resources.

So, I invite you to be conscious of how you are using your willpower.  If you truly want to see change in one area of your life, delay making changes in other areas.

Divorce/Estate/Financial Planning/Legal Separation/Divorce/Money

Decide What Your Stuff is Worth

This excerpt on Slate.com offers a “Minimalist” perspective on some of the hidden costs of our belongings.  I’m not siding one way or the other in the stuff debate, rather I’m recognizing that–as is true for everything–being mindful of our acquisitions is critical.

As kids, we learn that it costs money to buy something.  It’s as we get older that we recognize it also costs time, energy, and money to maintain it.  Having a car is great, until you have to wash it.  Having a backyard is great, until you have to weed it.  Having a house is great, until you have to replace the water heater.  As Joshua Fields Millburn writes:  “No matter how organized we are, we must continue to care for the stuff we organize, sorting and cleaning our meticulously structured belongings.”

In my work, I see the financial challenges that folks face to get and maintain their stuff.  I also see the choices they have to make during tough times such as divorce or death.  Like many professionals who work with divorcing couples, I have seen what happens when anger, fear, and disappointment converge and a normal object’s importance far surpasses its market value.  The emotions of the divorce distort the client’s sense of worth so that it seems fighting over that object is a good use of their time, energy, and money.  I suspect that if these clients’ wiser selves could talk to them, they’d advise saving money and skipping the battle.

Will contests happen when heirs are unhappy with how a relation’s estate passed.  To some extent, estate planning in Washington is simplified by the fact that a testator (person making a will) can create their own, separate, written instructions as to the disposition of tangible personal property.  Nevertheless, at death, your choices about what things felt deserved your time, energy, and money will directly impact the person or persons who administer your estate.  

For myself, I’d say that I’m a “sufficient-ist”.  I need stuff; stuff helps comfort and entertain.  And I want my stuff to be worth the time, energy, and money that it takes to maintain it.  

 

Estate/Financial Planning/Legal Separation/Divorce/Money

Persuading Yourself

Full disclosure:  I like the way that Dan Pink thinks and I like the way he writes.  “Free Agent Nation” captured my imagination a decade ago, “The Adventures of Johnny Bunko” cheered me up during a tough career patch, and now “To Sell is Human” has given me some excellent food for thought in terms of persuading others…and myself.

Pink acknowledges that “we human beings are notoriously bad at wrapping our minds around far-off events.  Our biases point us toward the present.”  This is a big hindrance in decision-making, whether it’s about deciding to go ahead with estate planning, to finally get in control of finances, or make other big life shifts.  In a series of experiments, Hal Hershfield, a social psychologist at New York University, worked with colleagues to study the decisions that research participants made regarding retirement savings.

After these experiments, Hershfield concluded that participants who saw aged images of themselves–not just any “old” person, but themselves–always saved more.  The insight?  In Pink’s words, “we think of ourselves today and ourselves in the future as different people.”  It’s amazing that this seems to happen so consistently, and we don’t even notice it!

Since reading this, I’ve really enjoyed framing decision in terms of whether I’d be satisfied with the outcome if it were to happen right now.  Would my current “me”, with all my reasonable needs and irrational desires, like the reality the decision would create?  If the answer is “no”, then it’s time to make a different decision.  Can you think of how this might help you persuade yourself?

 

Estate/Financial Planning/Money

Women and Money

This article from the September 2012 issue of Real Simple is a piece about which I have mixed feelings.

On the one hand, there are some anecdotes to which folks may be able to relate and the author raises some important long-term considerations. This is good stuff.

On the other hand, I see an oversimplification of what it means to take charge financially.  True, learning about investing and retirement savings are critical, and those things involve money.  However, I think that there’s an important middle layer of financial awareness and planning that the author glosses over.

The author talks about bargain-shopping, pinching pennies and hunting down sales.  This is pretty day-to-day stuff, and it can be important for living within your means.  But then, the focus of the article shifts to long-term planning.  Ack!  It’s a little like getting into an elevator on the ground floor of a building and finding out that it lets you off in space.

What my financial counseling experience highlights is just how powerful it is to know where you stand financially from month-to-month and year-to-year and to plan accordingly.  This is the middle layer of financial awareness that gives you the peace of mind to take those pennies (or dollars) you saved and direct them accordingly.  This layer is vitally important and one that needs more press!

So, the jury has reached verdict on the piece:  As is often the case with magazine articles, there’s a gap between what the article promises and what it delivers.  Read wisely.

Estate/Financial Planning/Probate/Estate Administration

Spreading the Word on Collaborative Probate

Probate had a bad rap when I was in law school.  There were–and still are–numerous guides for consumers on how to avoid probate.  Washington has a fairly streamlined probate process, though, and so it’s not the Worst Thing in the World if you choose an estate plan that leads to probate.

In my opinion, the latest interesting development in the practice of probate law is the emergence of Collaborative Probate practice.  I wrote a little piece on this way to approach probate disputes.  Here it is:  Free to Choose – July 2012 (originally published in the July 2012 issue of the King County Bar Association Bar Bulletin and reprinted with permission of the King County Bar Association).

Estate/Financial Planning/Legal Separation/Divorce/Self-employed

Your IRA in a Divorce

This “Tax Talk” question on the Yahoo Finance site does a pretty good job summing up important information on dividing an IRA (“individual retirement account”) in a divorce.  This is sometimes a tricky topic for clients.

In a divorce, the first issue is what is legally-appropriate division of the retirement account, if any.  Sometimes it’s preferable for a divorcing person to keep the entire balance of a retirement account and for their spouse to receive other assets to create an equitable settlement.

If you do decide to divide a retirement account, the process to divide it differs depending on what kind of account it is.  Some divisions can be accomplished simply by stating what each person gets in the final decree and then notifying the account holder; for some accounts, like a 401(k) account or a pension plan, you will likely need a court order to divide the account.  This is one of those things that it’s worth discussing with an attorney because there are some seemingly small details in those orders that can make a big difference!

Estate/Financial Planning/Legal Separation/Divorce

Financial Planning, Post-Divorce

From Florida’s Bradenton Herald, here’s a Cliff Notes version of helpful post-divorce financial planning steps.  (As I update this in 2016, the original post has been taken down.  Still, these are valuable points to review.)

  1. Start with a financial planner.
  2. Talk with an estate planning attorney.
  3. Make a guardianship plan for your kids.
  4. Plan for special needs kids.
  5. Re-visit insurance.
  6. Review account titling and beneficiaries on investments.  (I recently wrote about the beneficiary designation piece here.)