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Estate Planning After Remarriage

There are triggering events which make estate planning, or editing an estate plan, necessary in Oregon. Remarriage is one of these triggers. This is especially true if your new marriage includes children from previous marriages, stepchildren, and additional children from your current marriage.

Even in the most well-adjusted blended families, death challenges relationships. This makes a clear estate plan vital if you want to provide for family members while also reducing conflict. You must also avoid making the same estate planning assumptions that are appropriate in first marriages but are likely to backfire in subsequent ones. Here are four unique considerations when creating an estate plan after remarriage.

Conflicts of Interest

The natural inclination is to leave everything to your spouse and for your spouse to do the same. This is a safe avenue in first marriages when children only come from that marriage.

Remarriage changes that dynamic. If you pass all your property and money to your current spouse, understand that they have no obligation to consider your children from a previous marriage. Your death may create distance between them and if your current spouse outlives you considerably, he or she will be more likely to account for his or her own children and any new spouse. They are not likely to pass property to your children, especially if they have not spoken to each other for years.

One solution is to place your property in trust to provide income to your current spouse. Once your spouse passes away, remaining property is distributed to your children. You may include children from both your previous and current marriages and any stepchildren in that distribution.

If you decide to take this approach, appoint an uninterested third party to serve as trustee. Otherwise, there is a strong possibility of a conflict of interest based on self-interest.

If you appoint your spouse as the trustee, they may choose to invest your assets in low-yield options that leave nothing for your children once your spouse passes away. Likewise, your children may choose more long-term approaches that leave your current spouse inadequate income. An independent trustee is more likely to manage assets to everyone’s advantage.

Beneficiary Designations

Sometimes, the best approach to provide for children is with non-probate assets. Making them beneficiaries on your life insurance, retirement, and investment accounts is an excellent way of ensuring they receive something after your death. You are then safe to pass property and money to your spouse through your will.

This strategy is easier and less expensive than a trust but it requires attention to detail. Check the beneficiary designations on these assets and change them now. Most importantly, let your family know you made these changes and why. You do not want your spouse to expect a life insurance payout only to find out after your death that they are no longer entitled to those funds.

Agent Appointments

Your estate plan will likely include an advance directive and a durable power of attorney. These cover decision-making should you become incapacitated. The advance directive appoints a health care representative who makes health care decisions on your behalf. A power of attorney appoints an agent who manages your financial and business affairs if you are unable to do so.  A power of attorney dies when you do.

Spouses are often the first choice for these appointments. In blended families, this may not be the best idea. Hurt feelings and conflict can arise if your children from a previous marriage do not feel your spouse is acting in your best interest or puts his or her self-interest above your needs.

You are better off choosing family members who are suited to these tasks rather than focus on relationship status. For example, you may discuss end-of-life decisions more frequently with an adult child rather than your spouse. Your child may listen better while your spouse shuts down when you bring up the topic. Or you may run a small business with a daughter, who is likely a better candidate to be your power of attorney.

The important part is, you want to appoint individuals to get along well with all family members, including your spouse. If there is so much tension that this is impossible, consider appointing someone outside your immediate blended family, like a close friend or sibling.

Dangers of Intestacy (when you don’t have a Will)

It may be tempting to do nothing and let intestate statutes take control. This may seem to prevent difficult discussions but it will only lead to many, many problems for your loved ones after you pass away.

Intestate succession only considers blood relatives. It will ensure support for spouses, children, parents, and even siblings. But if you are close to your stepchildren and want them to inherit assets or take over a small business, intestate succession will not allow that. Your stepchildren may also have special needs that you want to be provided for if you pass away. Again, intestate succession will not even take them in account, even if you had a close relationship. This only changes if you adopted them, which often does not occur if you remarry their parent when they are adults.

Blended families offer distinct estate planning challenges, but they are not surmountable. Find solutions by discussing them with an Oregon estate planning attorney. Call Diane L. Gruber today to schedule a consultation.

Tax Reform Benefits For The Newly Single

Divorce is often necessary but there is no doubt that it causes financial hardship. Households that were once supported by two incomes are now supported by one. Even if it was only a one-income household before, that still places the non-working spouse in serious uncertainty.

Taxes are the last problem you need when you are newly divorced or planning on it. Fortunately, the tax reforms arising from the Tax Cuts and Job Act offer new advantages to single taxpayers, including parents. Here are four of them.

No Tax on Spousal Support

A 75-year-old law made spousal support a tax deduction for the one paying it but taxable income for the party receiving it. This was determined at a time when women’s opportunities for advancement were limited. So, this scheme was implemented to assure tax revenue when alimony was the only income received by a former spouse.

Spousal support still primarily benefits women with the Census Bureau estimating that 98 percent of recipients are female. But permanent awards of spousal support where former wives never return to work are rare. Most awards are temporary to allow time to develop marketable skills and secure an acceptable standard of living.

 

Even with the prospect of improved future income, taxing these benefits can still be a hardship–especially if the spouse returns to school or works only part-time in a tough economy. This hardship will no longer be an issue for any divorce proceeding after December 31, 2018. That makes it much easier to start fresh and not worry about a tax burden on top of other financial challenges.

Lower Income Taxes

Not only is your spousal support nontaxable but any income you bring into your household will likely be taxed less.

Before the new act, an annual income of $38,000 was taxed at  25 percent. That was a tremendous impact, especially if your paycheck also decreased further due to child support or health insurance.

However, when you file your 2018 tax returns, your income tax will reduce to 12 percent. This can definitely ease the financial transition of moving from two incomes to one and help you live better on your own.

Improved Deductions

At first glance, eliminating the personal exemption appears to be a disadvantage. However, the new law replaced it with a larger standard deduction that benefits single taxpayers.

Before tax reform, the standard and personal exemptions combined for $10,400 if you filed a single person. With tax reform, the personal exemption is replaced with a higher standard deduction. For singles, that increased to $12,000, which is more than the standard and personal exemption combined.

If you are a single parent who applies the head of household deduction, you will notice a considerable improvement too. This deduction increased from $9,950 to $18,000. Conceivably, a single mother with two children can receive this deduction along with $4,000 in child tax credits–$400 of which is instantly refundable.

Even if your overall income tax only decreased by two to four percent, this new deduction still reduces your total tax burden. In fact, this is enough to move you from a 22 percent tax bracket to the coveted 12 percent spot. That makes a large difference in your take-home income.

Child Tax Credits and Breaks

The child tax credits and breaks either stay at previous levels or increase. Child support remains nontaxable.

There is no dispute that raising children as a single parent can be a hardship, so every tax benefit is helpful. Reforms increase the child tax credit to $2,000 per child with total refunds allowed up to $1,400. The Earned Income Tax Credit, child care credits, and student loan interest deductions remain the same.

You receive these benefits as long as your income as a single person does not exceed $200,000. In 2012, the most recent year these statistics were tracked, the average income for a family headed by a single woman was $25,493. Single father families averaged $36,471 per year. This is well within these tax credits as well as the advantages of the tax bracket adjustments described above.

Diane L. Gruber, Attorney at Law, offers 31 years of experience handling divorce, child custody, spousal support, and child support cases in Oregon. Our office serves Clackamas, Multnomah, and Washington counties. Contact us today to schedule a consultation.