Posts tagged Estate Planning
Estate Planning During Your Divorce

Estate planning and divorce proceedings are two aspects of life that are often placed at either end of a relationship spectrum. Both are sensitive topics that often force an uncomfortable conversation, and both are frequently avoided – whether at the end of our lives, or the end of our marriage. However, these two areas of the law have more in common than you might first imagine.

Almost every married person who drafts a Will leaves their assets to their surviving spouse. But what happens if you pass away while in the midst of a divorce? Unless and until the divorce is finalized, the terms of your Last Will and Testament control. In most cases, this means that the soon–to-be ex-spouse receives all of your property. Leaving all assets to your spouse has many tax-related benefits, but it may not be right for you if you’re going through a divorce.

Assets left to a spouse are not (generally) taxable upon the death of the first spouse. Therefore, most Wills direct all assets to the surviving spouse to save taxes. If this is how your Will is written, and you pass away in the middle of a divorce, your soon-to-be ex-spouse will receive all of your property.

In Washington, a dissolution of marriage proceeding is terminated if one of the individuals dies before the divorce is finalized.  The Court views divorce as personal and can no longer facilitate the dissolution of marriage proceeding without both parties present.  If a party dies, it’s as if the divorce proceeding was dismissed – as if it never happened.  From a policy standpoint, this makes sense because the courts want people to have the ability to change their mind and cancel a divorce proceeding before it is finalized. However, if the divorce is dismissed because a party dies, the Court cannot rewrite the Will, and in most cases, all assets of the deceased spouse will be provided to the surviving spouse.  

Broader implications

This could have large consequences with second marriages and children from a prior spouse.  If the surviving spouse is not the blood relative to some or all of the deceased spouses children, the Will could (depending on how it is written) give the surviving spouse the ability to disinherit children.    

When going through a divorce, it is very important to have a new Will drafted immediately, one that clearly states that you are married but getting a divorce and thus expressly do not leave any assets to your current spouse.  This language must be clearly articulated in the Will or the soon-to-be ex-spouse could challenge the new Will as an “omitted spouse”.

What about cohabitation?

It is not only married persons who should consider the need for estate planning.  Individuals who cohabitate in a manner consistent with a marriage-like relationship may naturally assume their partner would inherit their belongings in the same way – as a spouse would under the law.  This is not correct. Even in a relationship lasting for decades, the law in Washington does not grant your domestic partner any rights to your personal property, if you do not have a Will in place.  

Making sure your wishes, and those of your domestic partner, are reflected in a Will may be of even higher importance under these circumstances.  However, in the event your co-habitational relationship ends, the law does not operate in the same way as with married persons, and any distribution you have made to your ex-partner would be enforced. 

Bringing it all together

Protecting assets and heirs is a hallmark of estate planning and marriage dissolution.  When going through a divorce, a new Will protects for your family and assets.

All About Transfer-On-Death Deeds

This article discusses the TOD deed features and limitations, and helps to explain why—more than three years after passing of the new law—the TOD deed has not been widely adopted as a planning tool.

In June of 2014, our state adopted a new law allowing for transfer-on-death (“TOD”) deeds, known as the “Washington Uniform Real Property Transfer On Death Act” or “Act”. The Act was intended to simplify your estate planning by allowing you to transfer real property to your family members or beneficiaries at your death outside of probate. This is similar to pay-on-death designations on a bank or investment account.

Previously, almost all real property transfers on death required a probate proceeding. This new law now provides a simpler and (potentially) more cost effective alternative for transferring your real estate at your death without the time or costs of probate.

The TOD deed, however, has its limitations and should be carefully considered in the context of your overall estate plan. It should not be used simply to avoid probate. There are very few circumstances where the benefits of saving administration costs outweigh the benefits of having a will with more defined planning provisions.

Own A Family Business?


If you operate a family-owned business, transferring interests in that business to other family members for less than fair market value – by way of gift or below-market sale – could be more costly than you realize.

Here’s what can happen. If you, or a family member, transfers interests in your family-owned business, the difference between the actual market value of the interest and what the recipient pays for it is treated as a taxable gift. And any gift in excess of $14,000 ($28,000 if married), to any one recipient will affect the amount your estate can claim tax-free at death.  

Sound complicated? Well, it is. This is a key reason the advice of an attorney, well versed in tax law, is vital when you’re considering the sale of your business to family members. 

Currently, when these family business interests are assessed a market value, discounts are applied if the interest transferred is a minority interest.  These valuation discounts can reduce the value of assets owned by the business by as much as 65%, drastically reducing the value of gifts to relatives. That’s the essentials to the law at this time of writing. 

On August 4, 2016, the Treasury Department and the IRS released proposed regulations under IRC Section 2704 which, if finalized, will severely limit, if not eliminate valuation discounts for interests transferred in a family controlled entity.

The current regulation does little to limit restrictions placed on voting, redemption and liquidation; while the proposed regulations would cripple the ability of family-owned businesses to place restrictions on voting, redemption and liquidation. As a result, it would decrease allowable discounts on transfers of interests in family-owned businesses - and increase gift and estate taxes to the Transferor and their families. 

There are several areas of the regulations that will be changing and could affect your business. These include: 

  • Transfers Within 3 Years of Transferor’s Death that Result in a Lapse of Voting or Liquidation Right
  • Restrictions Imposed or Required by Law
  • Restrictions on Redemption or Liquidation
  • Non-family Member Owners’ Ability to Block the Removal of Covered Restrictions
  • Assignees

So what can you do as the owner of a family business? 

Well, first, take note of the timeline. This could take effect as early as January 1, 2017. If you are planning to transfer interests in your family’s business to other family members, make your transfers before the end of 2016. Our team of attorneys at JDSA will identify the interests affected by these proposed regulations, and help you effectively make your transfers, before the end of the year, ensuring a more favorable gift and estate tax outcome.  

To learn more about this topic, read the full article. To better understand how these proposed changes might affect your business and tax burden, call us today at JDSA Law.