Family Estate Planning

Estate Planning Considerations in Divorce

Far and away, the most common wills in Montana (and across America I would guess) say something like this: If I die before my spouse, all my property goes to him when I die. If my spouse dies before I do, my property goes to my children in equal shares. It’s popular for good reason: it works in a way most people think is fair. But here’s the catching point: the will doesn’t say “my spouse.” The will names your spouse. It says, “I’m married to Brad Pitt… If my husband, Brad Pitt, predeceases me…” So what happens if I’m not married to Brad Pitt at the time I die?

The good news is that Montana already thought of that. Our laws recognize that at the end of a messy and emotionally draining divorce the last thing you may feel like doing is having a new will drafted. So the law provides a sensible default. It says that if you named your spouse in your will, and executed a will at the time you were married, if you get divorced later we’re going to assume you meant for that to modify the will as well.

So, in the will discussed above, if I divorce Brad but don’t get around to having a new will drafted before I die – the Court is going to read my will as if all the parts included Brad had been deleted. Usually, this makes for a pretty good result. In the most-common scenario I started this article discussing, it would mean that everything would go to my children in equal shares. That’s probably what I would have done if I’d gotten around to making a new will anyway, so I’m happy with that.

But what if, after divorcing Brad, I’d married Ryan Reynolds? Wouldn’t I want my property to go to him? I might. But if I didn’t make a new will and specify that Ryan is going to be in a tough spot. This demonstrates that a sensible default is great, but it doesn’t cover all potential outcomes. I strongly recommend all my clients talk to an attorney about estate planning following a divorce. Whether that’s me or someone else isn’t as important to me, but you should know what will happen when you die. It may be that the default will cover you, but wouldn’t you want to know?

Montana Uniform Transfers to Minors Act

Imagine this situation: you want to give money or property to a young person in Montana, but you aren’t crazy about the idea of them having complete control over the asset right now. Later in life, your grandchild will surely be responsible and able to handle major life decisions very well. But at 16 years old, giving that same grandchild a huge chunk of money may be asking for trouble. What do you do?

A great option is to use the Montana Uniform Transfers to Minors Act which automatically creates a trust and allows you to name a custodian who is responsible for caring for the property until the grandchild (or whoever else is receiving the property) is old enough to handle it appropriately. It applies to anyone making gifts to minors – whether they’re children, grandchildren, nieces, nephews, other relatives or even people of no relation. The important part is that you specify when you give the gift that it’s made under the Uniform Transfers to Minors Act (UTMA).

You’ve always been able to create trusts and appoint a trustee to manage the assets (the same way that a custodian does under the UTMA). But there are some drawbacks to this approach. First and foremost, it is much more complicated that the UTMA. Along with that complication tends to come a higher expense as well. Meeting with a lawyer, having him draft up a trust, executing the trust, and then taking the steps to transfer the appropriate property into the trust (not to mention making sure that everything that should be in the trust stays in the trust) is cumbersome and expensive. The UTMA allows you to avoid all of that and accomplish many of the same things quickly and easily.

So why would anyone do anything else? One drawback to the UTMA is that it does not allow for as much control as a traditional trust does. A major advantage of a trust is that you can specify as much as you want about how the property it to be managed and how it is to be distributed. Another important difference is time frame. The UTMA only lasts until the minor turns 21. At that point, anything left of the gift is given to them in full. So for example, if Grandpa Joe dies and leaves Charlie $200,000 in a UTMA account when Charlie is 15 – whatever is left of that account will be given to Charlie when he turns 21. If there’s $150,000 left in the account at that time, Charlie is about to be a 21 year old with $150,000 in his account and there’s very little that can be done about it. A traditional trust on the other hand can temper that by moving the age of distribution back, allowing for incremental distributions of it over time, or most any other option that you can think of.

The UTMA is great, but it’s not for everyone. If you’re interested, I’d suggesting talking to an attorney or estate planning specialist who can walk you through the benefits and drawbacks as they apply to your situation.