Estate Planning and Divorce
I had the honor of being on Patti Handy's show, "Starting Over" on KHTS in Santa Clarita, California. This episode focuses on how estate planning dovetails with the issue of divorce. To learn more about Patti, visit http://www.PattiHandy.com.
Patti Handy: Hey there, and welcome to Starting Over. I am your host, Patti Handy. I'm so happy you're here. Thank you for sharing your lunch hour with me. You're listening to KHTS, your hometown station on AM 12:20, and 98.1 FM. We're also Facebook Live at KHTS, so you can send in questions if you want to. You could also download the app for free, KHTS app and listen live anywhere. The intro shared a little bit about Starting Over, but I wanted to repeat that, that the show is dedicated for those starting over after divorce or loss of a spouse. Having gone through a divorce myself, I understand the overwhelm, the feeling lost, the roller coaster that you're on. My focus is really to bring you tools, hope, inspiration, and navigate this time in your life. As a mortgage adviser, I'm going to talk about money and credit, but I'm going to also discuss very important topics such as estate planning, financial planning. We're going to have different speakers such as personal trainers, motivational speakers, nutritionists, therapists, life coaches. It just runs the gamut. Make sure you tune in second Wednesday of every month at noon, and welcome.
Rob Mansour is a dear friend of mine. He is an estate planning attorney here in Santa Clarita. I, right after my divorce, after I got my head out of the clouds, one of the first things I did was get an estate plan and living trust myself. My son was 18 months old, and I wanted to make sure that he was protected and everything was known as far as my wishes go. First, thank you for being here.
Rob Mansour: Thank you, Patti. Thanks for having me on your show.
Patti Handy: Welcome. I love that you're here.
Rob Mansour: I'm a little nervous. Is that okay?
Patti Handy: It's okay. It's all good. We're having lunch. We're just having lunch together.
Rob Mansour: Okay, very good.
Patti Handy: Just minus the salad. It's all good. Explain to us, out of the gate, what exactly is an estate plan.
Rob Mansour: Okay, I think it's a good place to start, because a lot of people heard the word estate planning, and some people think it has something to do with real estate. I'm like, "No, that's not what it is." Some people hear the word estate planning, and they hear that word, estate, and they think, "Okay, maybe I have to be really wealthy to do something like estate planning." I think it's the word estate that misleads a lot of people. They think that they have to live in a big mansion and they're like the Rockefellers. I said, "No, an estate plan is just a plan about what to do with your stuff." Whatever stuff you have, if you have $25,000 in the bank and that's all you got, that's your estate. If you have 5 million dollars in the bank, that's your estate. An estate plan is a legal tool box full of legal tools such as something you talked about just a second ago, a living trust, wills, powers of attorney, healthcare directives and healthcare documents, guardianship nominations for minor children. A lot of clients don't realize that that is what an estate plan is. It's a legal tool box full of legal tools, such as the things that I just mentioned.
Patti Handy: Yeah. That's huge. The important thing for me, too, not only was the financial piece but the medical directive. If something happened to me, who would take care of my baby? What was my wishes for that situation?
Rob Mansour: That's right. You'll notice something, a lot of what I talked about has absolutely nothing to do with wealth. It has a lot more to do with who has the legal authority to act on my behalf. That's really what this is about. It's about two things. That's what this estate plan does. Number one, who gets my stuff when I die? That's what most people think about. But the other more important thing is, who has the legal authority to act on my behalf? A lot of people think, "Oh, my spouse has that authority." No, that's not true. They might think, "My kid has that authority." No, that's not true. It's whoever has the legal documents to act. Even when I called my wife's credit card company to get information, I wanted to find out what her balance was, they wouldn't share that information with me because I did not demonstrate to them that I had the legal authority for that information despite being married. That's just the tip of iceberg.
Patti Handy: An estate plan obviously is important not just for those who are divorced, but everybody. There isn't anybody who shouldn't have one.
Rob Mansour: That's right, because there's going to come a time when you're going to need somebody to act on your behalf. You may not be able to do that, or you're in the hospital, or something like that, or after you pass away, who's going to get your stuff and how are they going to get it. Especially if you have minor children. You want to make sure that they get those things in a responsible manner, just like you were concerned about Blake about after your divorce. 18 months old, oh my goodness, you need to create a plan.
Patti Handy: Yes.
Rob Mansour: Yeah, absolutely.
Patti Handy: On that note, if somebody is going through a divorce or recent divorce, when is a good time to get this done?
Rob Mansour: Okay. Sometimes I get clients who call me literally the day after they get the divorce papers. "I want to do my estate plan." I say, "Well, there's not much we can do yet because the dust hasn't settled. We still don't know what's his, what's hers, how is the estate going to be divided, so you can't really do too much until everything has been divided. You have your column of stuff, he has his column of stuff." Then, you can say, "Okay, now that I have my stuff, my assets, now I'm going to make a plan with respect to those assets." I had a client one time, he called me and he said, "Listen, I want to move my house into a trust." I say, "Well, your wife's name is on the house. You can't just move it unilaterally." "OH, I can't do that?" "No, you can't." I said, "When the divorce is over, then let's sit down and create plan."I think that would be the when.
Patti Handy: Okay. I would imagine you would be separating, obviously through the divorce, the house, the banking, the debts, the whole...
Rob Mansour: Banking, IRA's, yeah.
Patti Handy: That leads me to the next question, how is the vesting? How should you, a medical term for that when you put your title into that trust?
Rob Mansour: How do I do it?
Patti Handy: Yeah. What's the ...
Rob Mansour: Okay, so let's say I'm John Smith, and I just got a divorce, and I have this thing now called the John Smith living trust. John Smith living trust says "Hey, I'm John Smith. This is my stuff, and this is where it goes when I die, and this is who is responsible if I can't act on my own behalf." Now, I have assets. The document itself doesn't have any magical properties to it. You actually have to go move your assets into the name of the trust. That requires assigning a new deed to your real estate, for example. Instead of the house being owned by John Smith, it's now going to say the John Smith living trust dated blah, blah, blah. You have to go to the bank. You say, "Hi, I'm John Smith. I have this living trust." They have to move the accounts from your name into the name of the trust which requires paperwork. A lot of people make this big mistake, they don't fund their trust.
Patti Handy: Funding, that was the term I was looking before.
Rob Mansour: Yes. Funding. They create this thing. It's like building a house but never moving into it.
Patti Handy: Got you.
Rob Mansour: They build the house to their specifications, all the things they want, but they never move into the house. My question to them is, "Well, what was the point of building the house?"
Patti Handy: Why do you have a trust?
Rob Mansour: Yeah, why do you have the trust if you haven't moved things into it? That requires paperwork and a little bit of leg work.
Patti Handy: The vesting on the house should be the trust, the vesting on all the assets, the checking, the savings, the IRA's, is IRA's ...
Rob Mansour: No, the IRA's, are a special animal.
Patti Handy: It's a different, okay.
Rob Mansour: That's right. I tell clients to imagine that there are two funnels. One funnel is called the living trust funnel, and some assets are going to pass by that funnel. Other assets like life insurance and IRA's, all they care about is what you put on a beneficiary form. Especially after a divorce, you want to revisit that, because what if your ex-spouse is still your primary beneficiary on a life insurance policy?
Patti Handy: Believe me, I visited that.
Rob Mansour: What if your ex-spouse is going to get your IRA? It's probably the last person you want to get your 401k.
Patti Handy: Yes.
Rob Mansour: Those assets you have to change the beneficiary. Now, the beneficiary can be your living trust. For people with minor children, I think that's a good idea, because my kids for example are 20 and 18. My life insurance policy is not payable to Alex and Veronica Mansour. Those are my kids. It's payable to the Mansour family trust because there's no way in heck I want that money to go directly to my kids at such a young age.
Patti Handy: The trust dictates when the money goes, at what age to the kids.
Rob Mansour: Exactly. Also, if you build it right, it also says when it doesn't go to the kids, so for example, what if my son is in a bad marriage? What if my daughter is in a middle of a lawsuit? What if one of my kids is disabled and shouldn't receive any money for some reason or another? There are protections that you can build into that living trust to protect your kids. Also, speaking of minor children, you may not want your ex-spouse managing the money for your minor kid. What could you do is the John Smith trust, you can say, "My brother, Jack, shall be my trustee." John's kids can get the money but his brother Jack will manage the money for the kids. Not John's ex-wife. That's especially important if your ex-spouse wasn't good at handling money or you suspect they're going to take the money and go to Vegas with it.
Patti Handy: Right, right. That's huge. You have to name who you want to manage those funds, and again, part of the trust that protects your kids.
Rob Mansour: That's right. That's exactly right. Also, don't just name one person. Name a deeper bench. Have like two or three people just in case the person you selected, exactly, can't do the job. Exactly.
Patti Handy: Something happens. Yeah. Should you ever put kids on title of anything?
Rob Mansour: I'm not a big fan of putting children on title to anything. A lot of clients, after they get a divorce or they lose a spouse or something like that, they'll start putting their children on title. There are three or four reasons why that's a bad idea. Whenever you add somebody to an asset, let's say Mary puts her son, Johnny on her house. If Johnny gets into any trouble, Johnny gets into a lawsuit, Johnny files for bankruptcy, Johnny gets a divorce, something wrong happens to Johnny, her house has a bullseye on it because she put Johnny on there. Also, if you put somebody as a co-owner with you, like on a bank account, there's nothing to prevent them from walking into the bank and just taking your money and going to Vegas with it again.
Patti Handy: Oh boy.
Rob Mansour: Also, if you have multiple kids. Let's say you have three or four kids and you decide to put Johnny on title, when you die, Johnny gets all of that. Maybe Johnny doesn't want to share with the other kids for one reason or another. I'm not a big fan of putting children on title. Now, there is one caveat. If you're nervous about stuff, put most of the stuff in your trust, and then create a very small baby account with five grand in it, or $2,500 or something like that, and put one of your kids on title to that. That way, the kid can help you right checks, can help you do this or that, has access to immediate cash. But don't put them on the larger assets. Keep all of that in your trust.
Patti Handy: Okay. That sounds good.
Rob Mansour: Does that make sense?
Patti Handy: Yeah, absolutely.
Rob Mansour: Yeah. There are other tax ramifications but it's too complicated to get into on this show.
Patti Handy: Okay. I want to revisit one thing, just to make sure I understand it. On an IRA, 401k, those things are such that the beneficiary should be the trust, not the child's name.
Rob Mansour: It depends. If you have three grown children and they all have good heads on their shoulders, and they're all in their mid 30's, and they're going fine, nobody's got any problems, name the three kids. Make life easier for everybody. But if you have minor children or if you have a child with a disability, or some reason where you might want to protect the kids, you might want to name your trust as the beneficiary. There are a lot of caveats to that, but the point is the shortest distance between two points is just naming the child. Naming the individual that you want that money to go to, but only if you think that they're going to be okay. There's not any trouble on the horizon and all the kids are doing fine. My trust is my secondary beneficiary. I have my wife first, followed by my living trust. Why my living trust? Because my kids are still kind of young. 20 and 18. I would much rather wait until they get to their mid 20's, late 20's, and then say, "You know what, I'm now going to put them as individual beneficiaries."
Life insurance is different. When you pass away, the life insurance company just writes one big lump sum check. It's not the kind of thing that gets [doled 00:12:25] out overtime like an IRA. What I do with life insurance, I just say name your trust as the beneficiary. They'll just write a big fat check to the John Smith living trust, and then the John Smith living trust will say what happens with all that money. I hope that helps a little bit.
Patti Handy: Yeah, absolutely.
Rob Mansour: Yeah. That's what I usually say.
Patti Handy: Then, the person who you've dedicated in the trust to manage those funds, would manage that life insurance money?
Rob Mansour: That's right. For example, I have a million dollar life insurance policy. I am worth more dead than I am alive, right?
Patti Handy: Yeah. You and me both.
Rob Mansour: I sleep with one eye open. Basically, that money is going to be written to the Mansour family trust when I die. Now, if my kids are there, uncle Charlie, my brother-in-law will be managing that money for my kids so that they don't have immediate access to it. That's why.
Patti Handy: Okay. That makes sense.
Rob Mansour: Yeah.
Patti Handy: Guardianship of children, that's also specified?
Rob Mansour: Oh yeah.
Patti Handy: Then, speak about that, and then also before I forget, I want to talk about the probate piece. Some of that, I know we're kind of jumping ship a little bit, but the probate piece, isn't that also why a living trust is helpful?
Rob Mansour: Yes. A living trust helps avoid probate, but let me address the issue of guardianship first. One of the things that you can do in your trust, especially if you've recently got a divorce, sometimes you may not want that ex-spouse to be the guardian over your children. I had a client one time whose husband, her ex-husband was abusive. He was verbally abusive, not physically abusive but verbal abusive. What we did is in her will, we named other people to be guardians over her children, and we also said why the husband wasn't suitable. She explained why in her will, where she addresses the guardianship, why her husband would not be the bet choice. Why is she doing that? Because at some point, a judge might be reading that information, and it's a way for her to communicate to a judge why she doesn't think her ex-husband would be suitable.
In some cases, you may not have much leeway because the judge is going to order the natural father, or the natural mom, but there may be times when that person is not available or doesn't want to be the guardian of the kids, is an absent father, an absent mother, so you should name in your documents who's going to be legally responsible for your children. Now, with respect to probate, probate is something that happens if you pass away and you've got something just sitting in your name alone, like a piece of real estate, and it's just in Patti's name. That's all, it's not in your trust, there's no joint owner, it just says Patti on it. In that case, I may have to go to court in order to get a judge to give that asset to your kids, to Blake. Why? Because I can't just walk unto the property and give it to Blake. I have to go get a judge's permission to do that.
Now, if it was in the name of your trust, I don't have to do that because your trust owns that asset. Probate only comes into play if there are assets that are sitting in your name alone, and in California, the current rule is if they exceed $150,000 in value. That's the current rule, but a lot of clients think that probate is a necessary evil, but the truth is if everything is properly titled, either by way of beneficiary or by way of your trust, you will avoid the probate system almost all the time. Which is a good thing. You want to stay out of the courts.
Patti Handy: Yeah. Absolutely. If somebody already has an estate plan, living trust, will in place, they just want somebody to take a look, make sure it's current, they did it 15 years ago, 20 years ago, and they want to just have it looked at again, will you review documents?
Rob Mansour: Yeah. I do that a lot. Clients will come with a previous estate plan, and say, "Hey, listen, first of all, what does this say? Is it any good?" Sometimes I tell the client, "This is actually very good. You don't need to do anything." But I will say, if it's been more than 10 years, at the very least, you probably want to freshen up the powers of attorney and the healthcare documents. Here's why. Even though they may be legally sufficient, and they're fine, they might be legally fine, as a practical matter, you present a very old document to a financial institution or to a doctor or a hospital, they might look at it and say, "Do you have anything newer than this? Do you have anything more recent?" It's not because of anything that you did wrong, it's just because their policy at that particular place might be, "We don't honor anything more than five years old, or more than seven years old, or more than 10 years old." You might have to go to court to get that enforced, but boy, that's a big pain.
As a practical matter, I'd say every seven years, revisit what you have, especially if it doesn't say what you want it to say anymore. You want to change guardians, you just got a divorce and you don't want your husband to have anything to do with this anymore, you want somebody else to manage the money for your child. Those are perfect examples of when you might want to do that.
Patti Handy: Yeah. Great point. If you're married, and you have this living trust in place, and you get divorced, obviously you don't want that trust to ... that's void...
Rob Mansour: That's right. You want to remake it. You want to revoke everything and start brand new.
Patti Handy: Start from scratch.
Rob Mansour: Exactly.
Patti Handy: Yeah. I could see that as being a huge piece.
Rob Mansour: That's right.
Patti Handy: Talk to us about remarriage. We don't have much more time but I know this is another probably...
Rob Mansour: You meet somebody new, right, after your divorce, right?
Patti Handy: Yeah. If you meet somebody new and you remarry, and you have blended family, second marriages. How does that play into ...
Rob Mansour: That's a very good question. Now, John Smith has his stuff, he made his own living trust, and he lives for a few more years, five years, six years, and he meets Sally, his new love. Sally maybe has children of her own. Maybe she's also divorced. Maybe Sally has her own estate plan, and maybe she has her own living trust. Sometimes, what I tell clients is, "Look, there's many ways you can go." I'm a big fan of his and hers trust, especially if people are getting married later in life. They already have their stuff, John wants to be in charge of his stuff, Sally wants to be in charge of her stuff. Sometimes what we do is we leave John's estate plan alone, but we make sure we include Sally now in some way, and then Sally sits down with me and she makes her own estate plan that includes John. That way, she's in charge of her own things. She can make changes if and when she wants to, and he can make changes if and when he wants to.
After they get married, their new marriage, let's say 10 years down the line, John and Sally may say, "You know what, this is going swimmingly. This is wonderful. We don't want to have his and hers stuff anymore, we want to have ours." In that case, we would just get rid of both of those trusts and we create the Smith family trust. A joint trust for both of them, but it's very important to address one elephant in the room, what happens when one of them dies? John has kids from a previous marriage, Sally has kids from a previous marriage, so let's say if Sally passes away, what's going to happen to her kids? Who's going to watch over those kids? Kind of like the Brady Bunch. What if Carol Brady dies? What if Mike Brady dies? We always have to talk about what happens if the first spouse dies, how are we going to take care of those children. Also, that's an example of where everybody gets along. I had a client, a couple of clients where his children did not like the new wife. They hated her. They despised her.
Patti Handy: Oh dear.
Rob Mansour: She said, "Well wait a minute, if he dies first, I don't want them just looking at me waiting for me to die. Just like, Hey, when are you going to die so we can get our stuff?" What we did, is when he died, we created a plan that says his children are going to get X, they're going to get $100,000 each, and then they're going to leave her alone. We created a plan that accounted for what happens when he dies first, take care of his kids, and now she rests easy knowing that she doesn't have to worry about those kids anymore. Or you can make a life insurance policy payable to those kids. In that way, you've taken care of them, and that way the new wife or the new husband doesn't have to worry about those kids. Blended family's absolutely a must, where you want to sit down and create a plan.
One last thing, if you meet that new spouse and you go meet the lawyer, both of you should come. The husband and the wife should come. Everything I above board, we create a plan that suits everybody's needs, because it's really hard to devise something if just one person comes to my office. I always recommend that they bring both people.
Patti Handy: That makes perfect sense. Just out of curiosity in that case, how often do you see the desire to have one trust with the blended family versus his family-her family, and keep it separate?
Rob Mansour: Well, it depends on the situation. For example, I just did one, it was his and hers estate plans. Why did I do it that way? Well, because Cathy, my client, she had a previous estate plan from before. A lot of her assets were already sitting in the name of her trust. It was going to be a real hassle to retitle all of that stuff.
Patti Handy: Sure.
Rob Mansour: What we did is we just tweaked her trust to include her new husband, and he did his own plan. Plus, they also liked the idea of having dominion over their own stuff. If he wanted to make changes, he could, he didn't need her signature and vice versa. But then I have clients who are like, "You know what, it's not going to be his and hers, it's just going to be one pot." The trust can still say what happens when one person dies and what happens when the other person dies. I would say it's about 50-50 where clients do his and hers, and the other 50%, they just decide to start over with a brand new joint estate plan.
Patti Handy: I would imagine too that if both parties have no children, it's a little simpler and that there's not much as far as protecting the kids and...
Rob Mansour: Fewer complications.
Patti Handy: Yeah, less activity going on in that.
Rob Mansour: That's right. That's right. Actually, the more details you put in the trust or the trusts, and the estate plan, the less problems you tend to have. The problems that we see a lot is where the trust is silent on a particular issue, or people got it from legal zoom or something like that. It's fine, but it doesn't say enough. It doesn't address thing specifically enough. That's where you run into problems. That's why when my clients come and visit with me, they're like, "Oh my goodness, I didn't know there was that much to talk about." I'm like, "Yeah, there's a lot to talk about."
Patti Handy: There's so much to that. We've covered a lot of great information. I need to have you back, because we need to talk about when the spouse passes away and how to deal with that, and so I will have you back.
Rob Mansour: All right. If they let me back in the building, yeah.
Patti Handy: You know what, I think you're good. There hasn't been anybody coming after us just yet.
Rob Mansour: All right, very good.
Patti Handy: Thank you. Tell us where people can reach you.
Rob Mansour: Sure. My website is the best place to find me. There's a lot of helpful videos there, et cetera. The website is mansourlaw.com. My last name, Mansour, which is M-A-N-S-O-U-R, then the word "law," .com. The phone number if people want to call is 661-414-7100.
Patti Handy: Awesome. I can attest to what an amazing individual you are. Not just brilliant attorney, but just a warm, kind human being that has the client's best interest at heart.
Rob Mansour: Thank you, Patti. You're going to make me blush. That's very kind.
Patti Handy: I'll collect my $20 later. No, honestly, I am proud to call you my friend, and I'm happy that you joined us.
Rob Mansour: Likewise, Patti. Thank you.
Patti Handy: You're listening to your home town station, KHTS, 98.1. Come back, we have a financial planner coming up in the next half hour. Stay tuned and we'll see you soon.
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