Five Questions Single Parents Should Ask About Their Estate Plans

In many respects, estate planning for single parents of minor children is similar to estate planning for families with two parents. Parents with minor children want to provide for their children’s care and financial needs. But when only one parent is involved, certain aspects of an estate plan demand special attention. If you’re a single parent, here are five questions you should ask:

1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan, including any wills or trusts recently, do so as soon as possible and regularly to ensure that it reflects your current circumstances. You want a court to have to decide how to allocate your assets or determine who should care for children who were not born at the time you initially created your estate plan.

2. Have I selected an appropriate guardian? If the other parent is unavailable to take custody of your children should you become incapacitated or die suddenly, does your estate plan designate a suitable, willing guardian to care for them? Will the guardian need financial assistance to raise and educate your children? If not, you might want to preserve your wealth in a trust until your children are adults.

3. Am I adequately insured? With only one income to depend on, you need to plan carefully to ensure that you can provide for your retirement as well as your children’s financial security. Life insurance can be an effective way to augment your estate. You should also consider disability insurance as an way to address your needs in case of incapacity.

4. What if I become incapacitated? It’s particularly important for you to include in your estate plan an appropriate directive to specify your preferences for the use of life-sustaining medical procedures and to designate someone to make medical decisions on your behalf. You should also have appropriate powers of attorney or other estate documents that provides for the management of your finances during any period when you are unable to do so.

5. Should I establish a trust for my children? Creating a trust can be one of the most effective ways to provide for children regardless of their age. Trust assets are managed by one or more qualified, trusted individuals or corporate trustees, and you specify when and under what circumstances funds should be distributed to your children. A trust can be particularly useful if you have minor children. Without one, your assets may come under the control of your former spouse, the child’s other parent or a court-appointed administrator.

If you’re a single parent, we can help answer your estate planning questions.

Are you leaving your IRA to someone other than your spouse?

An IRA can be a powerful wealth-building tool, offering tax-deferred growth (tax-free in the case of a Roth IRA), asset protection and other benefits. But if you leave an IRA to your children — or to someone else other than your spouse — these benefits can be lost without careful planning.

“Inherited IRA” stretches tax benefits
A surviving spouse who inherits an IRA is permitted to roll that IRA into his or her own IRA, allowing the funds to continue growing tax-deferred or tax-free until the funds are withdrawn in retirement or after age 70½. Beneficiaries who are not your spouse are treated differently.

To take advantage of an IRA’s tax benefits, nonspouse beneficiaries must transfer the funds directly into an “inherited IRA.” Even then the beneficiaries will have to begin taking distributions by the end of the following year, but they’ll be able to stretch those distributions over their life expectancies.

This option is only available to your children or other non-spouse beneficiaries if you name them as beneficiaries (or secondary beneficiaries) of your IRA. If you leave an IRA to your estate, your children or other heirs will still receive a share of the IRA as beneficiaries of your estate, but they’ll have to withdraw the funds within five years (or, if you die after age 70½, over what would otherwise be your actuarial life expectancy).

If you name multiple nonspousal beneficiaries (several children, for example), each beneficiary will have to establish a separate inherited IRA account by the end of the year after the year of your death in order to take distributions over their respective life expectancies. If any beneficiary misses the deadline, he or she can still roll the distribution into an inherited IRA but he or she will have to use the oldest beneficiary’s life expectancy as the time over which they must remove the monies.

Be aware that, unlike other IRAs, inherited IRAs aren’t protected from creditors in bankruptcy.

Inherited IRA rules
The following special rules apply to an inherited IRA:

  • The IRA must be a new IRA set up for the specific purpose of receiving the inherited account.
  • The IRA must be specially titled in the deceased account owner’s name.
  • No other contributions may be made to the IRA.
  • No other amounts may generally be rolled into or out of the IRA.
  • Required minimum distributions will need to be made over the beneficiary’s life expectancy starting the year after the IRA owner’s death.

Please contact us if you have questions about how to address your IRA in your estate plan.

Divorce Necessitates an Estate Plan Review

There are few events that can completely upend a person’s life more than divorce. Of course, there’s the emotional toll on you and your family, but you also have to consider the divorce’s impact on your estate plan.

When you originally crafted your plan, you likely centered many of its strategies around your spouse. Thus, when divorce proceedings begin and when they conclude, it’s crucial to update your estate plan as soon as possible to avoid unintended outcomes. Don’t wait until the divorce is final.

Who’s next in line for your wealth?

Unless you wish to provide your soon-to-be former spouse with an inheritance, amend your will and any trusts to minimize or eliminate him or her as a beneficiary. In addition, unless you’re comfortable with him or her administering your estate or trust, you should designate someone else as executor or trustee. This is a good idea even if you live in one of the states where divorce automatically nullifies any gifts or bequests to an ex-spouse and automatically revokes an appointment of a former spouse as executor or trustee.

There are several reasons for this. First, if you die before the divorce is final even if you have lived separately for some time, your spouse will still inherit in accordance with your will or revocable trust, and his or her appointment as executor or trustee likely will stand.

Second, the laws in some states treat your estate plan as if your former spouse had predeceased you if you are living separately and are in the midst of divorce proceedings. If you’ve named contingent or residual beneficiaries, any property your estranged spouse would have received will go to them. If not, the property will pass according to the laws of intestate succession. But relying on these laws can be risky.

Finally, keep in mind that in many states, as long as you’re legally married, your spouse will retain elective share or other property rights to a portion of your estate. So while updating your plan soon after you decide to divorce can reduce the amount your spouse will receive if you die while you’re still married, it can be difficult to disinherit him or her completely before the divorce is final.

Seek peace of mind

If you’re going through divorce proceedings, contact us. We can help review and revise your estate plan to ensure that the proper heirs are provided for in the event of your death.

SmolenPlevy Attorneys Named ‘Top 100’ by Virginia Super Lawyers

SmolenPlevy is pleased to announce that Principals Alan Plevy and Kyung (Kathryn) Dickerson are recognized as Top 100 Virginia Super Lawyers in 2017. Ms. Dickerson is also included in the Top 50 Virginia Women Super Lawyers list. Fewer than five percent of attorneys in Virginia receive both honors. This is the third time since 2014 that Ms. Dickerson has received both awards.

Super Lawyers is a rating of outstanding lawyers, who have attained a high degree of peer recognition and professional achievement. The annual selections are made through a multiphase process that includes a statewide survey of lawyers, an independent evaluation of candidates and peer reviews by each practice area. The survey covers more than 70 practice areas.

SmolenPlevy Attorneys Volunteer in Fairfax Law Foundation’s Heroes vs. Villains 5k

Joshua Isaacs and Julie Swerbinsky volunteered at Fairfax Law Foundation’s Heroes vs. Villains 9th Annual Run for Justice 5k. Participants wore their best superhero or villain costume as they ran to raise money for the Foundation’s Pro Bono Program. It provides legal services for impoverished residents in Fairfax County and law-related education programs for students in the community.

The event, which was held April 23 at the Fairfax Corner Shopping Center, included a kids’ fun run, costume contest, pre-race warm-up and a post-race buffet. There were prizes for the best costumes and top finishers.

The Wall Street Journal: Divorced Couples, Put Aside Your Differences…for the Tax Break

Tax issues can surface every year, but former spouses who continue to feud lose the opportunity to save themselves taxes. The Wall Street Journal shares six tax issues that could affect you if you are divorced.

Divorce has many miseries. Taxes are one of the most persistent.

Issues can resurface annually during filing season and continue to affect couples years after they split. If former spouses don’t set aside their differences, one or both partners often end up overpaying.

Scott Kaplowitch, a managing partner with Edelstein & Co. in Boston, recently prepared a divorced couple’s returns. Although the ex-wife had the right to take deductions and credits for the couple’s children, there was no benefit for her because she has no employment income. She allowed her former husband to use the tax breaks and saved him about $2,500, Mr. Kaplowitch says.

The couple didn’t split the savings, he adds, but “it produced good will for the future.”

That’s the best case.

Tensions between ex-spouses are evident in Internal Revenue Service data. For the five years that ended in 2015, people paying alimony deducted some $57 billion, while people receiving alimony claimed only about $47 billion—a $10 billion discrepancy.

After a Treasury watchdog chided the IRS about the alimony gap in 2014, the agency became more vigilant. Now returns are automatically rejected if the alimony payer doesn’t supply a Social Security number for the recipient, an IRS spokesman says.

If you’re divorced, here are tax issues to watch.

Alimony. These payments, often called “maintenance,” are deductible by the payer and taxable to the recipient. To be deductible, payments must be made in cash and must be provided for in the divorce or separation agreement.

Voluntary payments for other items, such as a new computer for a child, typically can’t be deducted. The IRS has a history of challenging alimony deductions it thinks are nondeductible property settlements, child support or gifts.

Alimony can fund an individual retirement account. Alimony deductions end when the recipient dies, if payments haven’t already ended. For more on the definition of alimony, see IRS Publication 504.

Child support. These payments aren’t deductible by the payer or taxable to the recipient.

Dependent exemption. This benefit is a deduction, currently $4,050 for each child who qualifies as a dependent. There are several tests for this benefit, and they are detailed in IRS Publication 501.

Ex-spouses can often use IRS Form 8332 to toggle this exemption back and forth from year to year. This can be a good strategy if one ex is sometimes a high earner, because in 2016 the exemption began to phase out at $259,400 of adjusted gross income for single filers.

For feuding ex-spouses, there is an important caveat: The parent claiming the dependent exemption must include each child’s Social Security number, and the IRS’s system will reject a later-filed return claiming the same number. Even if the second-filing spouse deserves to take the exemption, the IRS seldom has the resources to sort out this issue, experts say.

Tax credits. These valuable breaks offset taxes instead of merely reducing income, and in some cases they can result in a refund check for a taxpayer who owes no tax. Tax credits involving children typically go to the spouse claiming the personal exemptions for them.

The Child Tax Credit of up to $1,000 per child began to phase out at $75,000 for single filers in 2016. The Earned Income Credit, which benefits the working poor, was up to $6,269 for single filers with three or more children and income up to about $48,000. The Dependent Care Credit, which is up to $2,100 for two or more children and $6,000 of total eligible expenses, has no income limit.

Education benefits. For most people, the best tax break for college is the American Opportunity Credit, which can reduce taxes by as much as $2,500 on up to $4,000 of college expenses per child.

Single filers get a lesser break or none if their income exceeds $80,000, but in some cases the child can benefit by claiming the credit if neither parent can—even if the child doesn’t pay the tuition.  

Taxes on a residence. To take typical homeowner deductions for mortgage interest or property taxes, a person must have full or partial ownership of the home and actually pay the expenses.
What if a home is sold and the proceeds divided? Each ex-spouse can get an exemption of up to $250,000 of gain, as long as that person both owned the home for two years and used it as a main residence for two years. For more details, see IRS Publication 523.

Kyung (Kathryn) Dickerson on NewsChannel 8: January is the Month for Divorce

January’s divorce filings are 30% more than any other month. SmolenPlevy Principal and family law attorney Kyung (Kathryn) Dickerson appeared on News Channel 8’s Good Morning Washington to explain why there is such an increase in divorces at the start of the new year.

Unhappy couples often wait until after the holidays because they don’t want to ruin that time for their children and family members. For some, spending extended time with their spouse confirms their desire to end the marriage. “There’s that post-holiday fatigue, where you are able to endure the holidays only because you know it’s the last time you will have to go through them or have to see your in laws again,” Dickerson tells Good Morning Washington host Larry Smith.

Dickerson provides some important tips to consider if you are planning on filing for a divorce.

  • Gather copies of documents that verify assets, liabilities, income and expenses.
  • Avoid unnecessary litigation expenses by being reasonable. Don’t do anything out of spite like cancel your spouse’s credit cards (without notice) or freeze the only accounts to which they have access.
  • Have realistic expectations. You are now going to support two households on the same income that paid for one. You will have to make some cuts and budget for a divorce.

Debt incurred jointly during the course of a marriage can stay with the couple. Dickerson says, “The credit card company doesn’t care if you’re getting a divorce. So be careful when you sever credit card ties. The last thing you want is your spouse standing in the grocery line, trying to pay for groceries for himself and the children, and realizing he doesn’t have a functioning credit card.”

Watch the full segment of Kyung (Kathryn) Dickerson on Good Morning Washington above.

On Air: WTOP Interviews Alan Plevy About Navigating Divorce During the Holidays

Divorce is difficult for children and their parents any time of the year, but the holidays can be particularly challenging. News radio WTOP turns to SmolenPlevy Co-founding Principal Alan Plevy for insights on how divorced or separated parents can reduce tension levels during the season.

Plevy says parents should keep the lines of communication open and try to work out details about times and days the children will spend with each parent.It’s important to put these agreements in writing, either by email or texts, so there are no misunderstandings. Another helpful tip: don’t get into a “can-you-top-this” gift battle. Plevy also suggests parents create new holiday traditions, such as volunteering at a homeless shelter, going ice skating or making reservations at one of their favorite restaurants. And finally, Plevy says pay special attention to how you, family members, and friends talk publicly about the other parent.

Plevy explains that “It’s really a holiday for the children, so we want to eliminate as much stress as possible for the children.”

Listen to Plevy on WTOP Radio below:

 

The Huffington Post: Tips to Survive the Holidays for Divorced Parents

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As seen on The Huffington Post by Alan Plevy and Kyung (Kathryn) Dickerson.

Divorce is difficult for children and their parents at any time of the year, but it can be particularly challenging during the holidays. There are a number of issues that can arise, including:

  • coordinating when and where the children are supposed to be,
  • the gift giving tug-of-war, where the parents try to outdo each other by giving the most expensive present, or try to make life difficult for the other parent by giving particularly annoying gifts, and
  • the termination or modification of established family holiday traditions.

The uncertainty and stress of being in a separated family or a divorced family can cause disagreements to quickly escalate into arguments, making this an overwhelming and stressful period for both parents and children. However, there are some things that you can do as a parent to make things easier during the holiday season.

Put your children first: Holidays when the parents aren’t together can be difficult for children, especially right after the initial separation. There is often a mixture of negative emotions: sadness, anger and disappointment. Make sure you listen to your children’s concerns and let them know that it is okay to have this mixture of emotions. Don’t forget that the holidays are supposed to be a fun, festive time for your children, so consider how constant tension and repeated arguments will impact them and try to lessen their exposure.

Plan ahead: To avoid confusion, uncertainty and arguments, parents need to create a logistical plan ahead of time that specifies when and where the children will be. Don’t make the mistake of waiting until the last minute to decide where the children will be and for how long the children will be with which parent. Make sure you confirm plans in writing, whether via email or otherwise so that both parents have a record of your agreements. Having written plans helps avoid misunderstandings. Also, don’t forget to keep your children updated on where they will go and when. It helps alleviate anxiety for children when they know that together their parents have come up with a plan for them during the holidays.

Avoid a gifting competition: Unfortunately, parents, particularly newly separated parents, can get into a gift giving war. It is not uncommon for one parent to give gifts that they know the children want without consulting the other parent or knowing that the other parent explicitly disagrees with the gift. This includes electronics like iPhones and iPads that one parent thinks is not age appropriate for the child. In other circumstances, parents try to compensate for any stress and anxiety children may be feeling as a result of the recent separation of the family by showering them with presents, well in excess of what they would have otherwise given if the family were intact. The best gift for your children is to avoid these competitions, because they not only cause strain between the parents, but also cause anxiety to the children. While the child might be initially thrilled to receive a pet, if they can’t take that pet to the other parent’s house then the gift ultimately causes them to feel stress, anxiety and disappointment. Sometimes, the gifts cause children to feel like a pawn in their parents’ battle – this is especially true for electronics, where one parent uses the child and the electronic device to “spy” on the other parent’s home. If it is at all possible, coordinate with the other parent so that the gifts are given from the parents jointly – despite the parents living in different households – this will give the children a sense of comfort that is a gift beyond a typical present.

Create new traditions: The holidays are usually a time for family traditions, but for divorced or recently separated parents, it might be time to start new ones. Holiday traditions can make the season special for children and establishing traditions where they focus on the needs of those less fortunate than themselves can ease the disappointment and anxiety that accompanies the breakup of their family. Also, creating new traditions gives the children something to look forward to in the years to come, and eases the loss of other established traditions.

Give yourself a gift: It is common for a divorced or newly separated parent to feel sad, alone and stressed during the holidays. Occasionally, because of the established visitation schedule, a parent might find themselves having more free time than in previous years or not having their child with them on the day of the holiday. While the children are learning to adapt to the established structure, you should as well. Therefore, use this time to do something special or to create a new tradition for yourself. By taking action to alleviate stress, you will give yourself the time to recharge and be at your best during the time that you have your children for the holidays.

 

Northern Virginia Magazine Recognizes SmolenPlevy Attorneys as ‘Top Lawyers’

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Northern Virginia Magazine names SmolenPlevy principals Jason Smolen, Alan Plevy, Daniel Ruttenberg and Kyung (Kathryn) Dickerson to its ‘Top Lawyers’ list for 2016. Nominated by their peers, the award recognizes SmolenPlevy for its excellence in the areas of family law, business organization, and trusts and estates.

Smolen, Plevy, Ruttenberg and Dickerson have previously been named ‘Top Lawyers’ by Northern Virginia Magazine in 2010, 2013 and 2015.