Archive for March, 2013

Modifying a Texas Estate Plan in the Wake of Marital Dissolution

Wednesday, March 20th, 2013

Because many marriages end in divorce, it is important to understand the benefits of a marital settlement agreement as well as the impact of divorce on the terms of a will. Many people continue to view prenuptial agreements as an unromantic partial commitment to the permanence of marriage. When either party to a marriage has children from a prior relationship, however, a prenuptial agreement is essential to ensure that children from the prior relationship, one’s current spouse and children from a pending marriage are provided for according to your intentions.

The process of providing for children from a prior relationship is easier when the parties to a marriage are on good terms than during the conflict that accompanies the divorce process. Most people would never consider entering into a business partnership without a partnership agreement which delineates that assets contributed by both parties, ownership shares and provisions for winding down the partnership, a marriage is a partnership that is more extensive than a business partnership. A prenuptial agreement is an important estate planning tool that ensures there is an agreement between marital partners about how these issues will be handled upon divorce.

Another important issue to consider if you are facing a pending divorce is the impact of that marital dissolution on your will. Under Texas Probate Code §69, the spouse from a marriage that ends in divorce is treated as though the former spouse pre-deceased the person whose will is being administered. In other words, all provisions for a former spouse in a will are invalidated under Texas law upon dissolution of the marriage. This means that if a person wishes to include provisions that benefit a former spouse in terms of testamentary gifts, the will must be revised to reflect these gifts following the divorce.

When both parties have prior marriages or children from other relationships, a carefully prepared estate plan can be essential to providing for those from multiple relationships. An estate plan should never be viewed as a finished product but an ongoing plan that must be revised with significant life changes including remarriage, birth of new children and divorce. Texas estate planning attorney Thomas D. Reino keeps in contact with estate planning clients so that he can periodically review their changing needs and inform them of changes in the law that impact their estate plan.

At our Arlington estate planning law firm, Mr. Reino carefully evaluates your estate to create an estate plan that is appropriate for your specific situation. If you have questions or need estate planning documents prepared, we invite you to contact us at 817.303.2133 or send us an email at tom@tomreinolaw.com so that you can set up an initial consultation.

Using a Spendthrift Trust to Provide Asset Protection for Beneficiaries in Texas

Wednesday, March 6th, 2013

One of the most important components of an effective estate plan is its asset protection features. When properly constructed, an estate plan can shield assets from your creditors as well as those of your beneficiaries. While many people postpone estate planning decisions, it is important to understand that the asset protection features of an estate plan must be implemented before the specter or a creditor claim or judgment is on the horizon to avoid claims of fraud.

A trust arrangement allows you as the Settlor to transfer assets into a trust that is managed by a Trustee for the benefit of the beneficiaries of the trust. While a trust can be either revocable or irrevocable and the same person can be both the Trustee and Beneficiary of the trust, there are limitations to such arrangements if the trust is going to provide asset protection.

The trust must be both irrevocable and you cannot be the beneficiary of the trust if you want the trust to provide protection from creditor claims. This type of trust is often called a “spendthrift trust.” This type of trust can be used to provide for the financial maintenance of another person while shielding the assets in the trust from the creditors of the beneficiary. This form of trust often is used to protect beneficiaries who may have difficulty managing their own financial affairs.

By way of example, the spendthrift trust might be set up with $500,000 in the trust with a limit of $25,000 per year in annual disbursements to protect a beneficiary who has a drug problem or gambling addiction. Any terms that are used to prevent a direct transfer of the trust assets to the beneficiary may be used to establish a spendthrift trust. While creditors can seek to have distributions made from the trust paid toward their claims, they cannot obtain a right to future payments from the trust nor the principal or assets within the trust.

This prevents the beneficiary from selling the trust assets to satisfy creditor claims. Although the creditor can still seek to enforce a judgment or other financial obligation against funds already disbursed, this spendthrift restriction prevents the entire principal in the trust from being pledged or the direct encumberance of future payments as they become due to the beneficiary. The protection of the principle increases the probability that the beneficiary will continue to have an ongoing stream of income for his or her care and support.

At our Arlington estate planning law firm, Thomas D. Reino carefully evaluates your estate to create an estate plan that is appropriate for your specific situation. If you have questions or need estate planning documents prepared, we invite you to contact us at 817.303.2133 or send us an email at tom@tomreinolaw.com so that you can set up an initial consultation.