LEGAL TALK
Silver Divorce and Estate Planning BY LAUREN C. ENEA, ESQ
A divorce almost always comes with emotional, personal and financial complications. And, divorcing later in life adds a level of complexity to your estate and tax plan. Here are a few items to consider:
1. DIVISION OF ASSETS Older adults are more likely to have an assortment of financial assets and real property from varied sources, including a retirement plan(s). A “silver” divorce can have the added negative effect of costing money at a time when future earning capacity is limited. In addition to allocating assets to each spouse, maintenance may need to be paid, or a spouse may need to remain the beneficiary on a retirement account or a life insurance policy. Spouses with pensions may want survivor benefits to extend to former partners. Couples in their 50s and 60s are more likely to have inherited property from their parents or other relatives and may have comingled these assets into marital property. This can create an issue during a divorce when the assets each individual has inherited have not been kept separate. 2. TAX ISSUES Transitioning from filing jointly to filing single can affect your income taxes and will impact the personal residence exclusion, which provides a tax exclusion from the sale or exchange of a principal residence of up to $250,000 for individuals filing single and $500,000 for those filing jointly. In a silver divorce, one of the largest assets a couple has is often their home, which may
have been purchased 30 or 40 years ago at a significantly lower cost than its worth today. If the property is transferred to one of the spouses pursuant to the divorce, this may negatively impact the capital gains tax if the property is later sold, as the personal residence exclusion for a couple of $500,000 will be reduced to the single individual personal exclusion of $250,000. Additionally, if the couple has an estate over the New York Estate Tax Exemption (currently $5.93 million for 2021) or over the Federal Estate Tax Exemption ($11.73 million for 2021), a divorce can significantly impact the tax planning options available, as the couple will lose the unlimited marital deduction, portability elections and the ability to utilize Disclaimer and/or Credit Shelter Trusts. 3. LONG TERM CARE PLANNING A couple in their 60s or 70s may be engaging in long term care planning techniques that include transferring assets out of their names in order to start the “five-year look back period” for nursing home Medicaid (to protect assets from the cost of long-term care). As such, if divorce is contemplated, it may be important to engage in long term care planning as part of the divorce settlement. This planning may include transferring marital assets to adult children or to an Irrevocable Medicaid Asset Protection Trust. Additionally, in New York, a married spouse can execute a Spousal Refusal so the other spouse can receive Medicaid benefits. If one is single, this option is no longer available.
4. ESTATE PLANNING In New York, a final judgment of divorce automatically revokes all provisions and bequests in a Last Will and Testament to a former spouse. It also revokes any appointments of the former spouse as agent under a health care proxy or agent under a power of attorney. Because of this, it is extremely important to have new estate planning documents drawn up during the pendency of a divorce and possibly after the divorce is finalized as well. Additionally, in certain circumstances, such as an amicable divorce, the spouses may still want to act as each other’s agents, and having the law automatically revoke these documents can cause serious consequences in the event of a health emergency or incapacity of a spouse. With silver divorces on the rise, it is more important than ever for divorce attorneys to consult with financial advisors, estate planning attorneys, elder law attorneys and other professionals to ensure their clients’ estate plan and financial future is as secure as possible. n n n
Lauren C. Enea, Esq. is an Associate at Enea, Scanlan & Sirignano, LLP. She concentrates her practice in Wills, Trusts and Estates, Medicaid Planning, Guardianships and Special Needs Planning and Probate/ Estate Administration. Ms. Enea believes it is never to early or too late to start planning for your future. She is admitted to practice law in New York and Florida and is an active member of the Executive Committee of the New York State Bar Association (NSYBA) Elder & Special Needs Section. She can be reached at 914-948-1500 or at L.Enea@esslawfirm.com. Please visit www.esslawfirm.com for more information.
What steps have you taken to protect your life savings from the cost of long term care? . Elder Law . Asset Protection . Medicaid Applications (Nursing Home/Home Care) . Guardianships (Contested/Non-Contested) . Wills, Trusts & Estates WHITE PLAINS
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Contact LAUREN C. ENEA, ESQ. fall 2021
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