Do you remember the Little Rascals?
I'm not talking about the old black-and-white films from the 1920s and 30s, although some of you might remember those. I mean the wonderful 1994 movie based on those old “Spanky and Our Gang” films. If you haven't seen it, it is a marvelous movie, quite funny and very much family-friendly.
There is a scene in the movie, in which one of the characters says “what's yours is mine, and what's mine is ours”. That gives me a chuckle, or at least a wry grin, every time I hear it. It is a line which a lot of divorce lawyers use, when talking to each other, to express how certain of their clients seem to feel. Everything which I brought into the marriage, or inherited, belongs to me. Everything my spouse brought into the marriage is joint property, to be divided in the property division.
Of course, it doesn't work that way, but sometimes it is hard for a divorce lawyer to get that across to their client. People who are going through a divorce are not always logical. That is at least one of the reasons I stopped handling divorce cases years ago.
But there are two points I want to make in regard to estate planning.
First, many of my clients have the concern that if they die and leave assets to their child, and then that child's spouse divorces them, all the money the client worked for would end up going to that ex-son or daughter-in-law.
That usually doesn't happen though. As long as the inheriting child keeps those assets separate, they are not treated as “marital property” in a divorce. Let us say that I leave a few hundred thousand dollars to one of my daughters. She takes that money and puts it into a brokerage account which is just in her name. If her husband runs off with some cocktail waitress, he can't claim that account as a marital asset. It is her separate money, and does not count in the property division.
Which is fine as long as she has the good sense, and strength of will, to do that. But if she is foolish enough to put it into a joint account, it would become marital property. Or if the relationship is so abusive (emotionally or otherwise) that she really can't say no, she might be forced to put it into a joint account.
And if she does keep it in a separate account, and then dies and leaves her estate to her husband, it might not end up with her kids. Her husband might leave it to his next wife, or her kids.
For that reason, some people put the assets into a living trust, and then direct that the assets will continue to be held in trust throughout the lifetime of their child. The trustee (that is the manager of the trust) can pay money out for the child's benefit, but the principal remains in the trust, to go to the grandchildren, typically, when the child dies.
There are downsides to doing that. Every year that the money is in trust, there are costs, such as tax preparation and accounting. It also makes selection of trustees more complex, since you need to have trustees who are not too much older than your child. Alternatively, you can name a bank or trust company, but that costs money. So most people don't go that far, they just leave it to their kids and trust their judgment. But it is an option.
The other point I want to make is that under the inheritance laws, not everything automatically belongs to a surviving spouse.
Some things do. What the Alaska Supreme Court calls “household goods”—furniture, appliances, artwork, and so forth— is presumed to be joint property, so it automatically belongs to the surviving spouse. And anything which is jointly titled, for example a joint bank account, automatically belongs to the other owner.
Real estate usually goes to the surviving spouse automatically, but not always. If the property is titled to the couple as husband and wife, then it automatically belongs to the survivor. But occasionally a property is titled to just one spouse.
I recently ran into a case, not for the first time, where a couple who were not yet married bought a property together, and then later got married. They assumed that the property would automatically pass to the surviving spouse, but because they were not married when they bought it, things would not have worked out that way.
In most cases it is pretty easy to fix that kind of situation, at least while both spouses are alive. Properties can be retitled to the couple as husband and wife. Accounts can either be made joint, or the spouse could be designated as the POD (or “death beneficiary”) on the account.
But don't automatically assume that the spouse necessarily inherits everything, otherwise it will be “what's mine is mine, and what's yours is in probate”.
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. Otay?
