Dissolution of Marriage and Estate Planning
| Publication year | 1973 |
| Pages | 19 |
1973, April, Pg. 19. Dissolution of Marriage and Estate Planning
Most efforts in handling a domestic case constitute estate planning in its broad, general sense.
Family estate planning has been defined as "the disposition or arrangement of one's affairs and assets in the manner best calculated to maintain and protect the family now and in the future."(fn1)
Marital dissolution is seldom contested, and most of our efforts in handling domestic cases consist of arranging the affairs and assets of our clients---an activity which is clearly estate planning.
The careful domestic relations lawyer must consider the income, gift, and estate tax consequences of a marital dissolution. He should also recognize the possibility that either of the parties may die unexpectedly. Two examples will illustrate the importance of estate planning in even routine domestic relations cases.
Suppose you represent Tom Martin, a wage earner whose material assets consist of two cars, household furnishings, personal effects and a residence. Tom purchased the home for $17,000 in 1964, and its current market value is $24,000. Tom also has three minor children. The separation agreement provides that Tom pay $195 per month child support; Tom's wife, Susan, waives maintenance. Each party receives a car. Susan gets the house, subject to the existing mortgage, and the furniture; each party keeps his or her personal effects. Imagine Tom's reaction when you advise him that the transfer of the house was a taxable event, and he has $3,500 in capital gains income as a result of the transfer.(fn2)
Alternatively, suppose you represent Susan Martin. Three years after the dissolution, her former husband dies leaving no estate but naming his new girlfreind as beneficiary to his $75,000 life insurance policy. In all probability Susan will feel that the policy would have been better used to continue the support payments for her minor children.
The following suggestions illustrate some of the major problem areas in estate planning for domestic clients. A checklist of important steps is included as a summary.
Estate planning in a domestic case begins with the initial interview, when you should determine what disposition of assets your client wishes if he should die before the
final decree of dissolution. Often your client will choose to arrange his affairs so that his surviving spouse will receive a minimum of his assets, while his children receive the maximum benefit from his estate. He may want no change in his present dispositive scheme, but you should take pains to determine his wishes and carry out any changes which are necessary.
Regardless of the dispositive scheme he selects, review all of the instruments which affect your client's estate plan, including his will, life insurance policies, pension plans, profit-sharing plans, deferred compensation agreements, existing trusts and deeds to property. After you have gathered these documents, change them to reflect your client's new family situation. This may require new beneficiary designations, revocation or amendment of inter vivos trusts, and clarification of identity by changing such terms as "wife," "brother-in-law," and "father-in-law" to proper names.
Since the decree of dissolution will affect your client's estate plan in a number of ways, you should consider the effect of a decree of dissolution prior to its entry so that timely action can be taken. Advise your client that his spouse has a statutory right to certain portions of his estate, regardless of the provisions of his will. Section 153-5-4 of Colorado Revised Statutes Annotated (1963) provides that a surviving spouse may take one-half of a testator's estate, notwithstanding the provisions of his will, by filing an election in writing within six months after the will is admitted to probate. Section 153-12-16 provides that the surviving spouse may, upon application, retain $7,500 of the probate estate as her separate property.
Upon entry of a decree of dissolution of marriage, your client ceases to qualify for the marital deduction under Section 2056 of the Internal Revenue Code of 1954 (the 1954 Code). As a result, clients who previously had no potential liability for estate tax may be exposed to such liability, and clients who had potential estate tax liability will have their problems aggravated by a decree of dissolution. In such cases, you can suggest other tax avoidance devices, such as a program of systematic inter vivos gifts.
In conjunction with the loss of the marital deduction, consider use of the gift-splitting provisions, provided under Section 2513 of the 1954 Code, before the decree is entered. The provisions apply...
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