13 Nov Can stealth estate planning work for sick mom?

Q. My parents are divorced and my mother is ill. I don’t talk to my dad, and my mom has never been great with money. I don’t think they’ve updated their estate documents, and I don’t want to stress out my mom. Is there a way to find out without asking either of them?
— Troubled

A. There’s really no way to confirm your mom’s wishes on paper as part of an estate plan without getting her involved.

There are really two issues here: How can you tactfully ask your parents about their estate plan? And how does a divorce affect estate planning documents that haven’t been updated?

It can be awkward to ask a parent about estate planning, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.

“You may fret, and rightfully so, that your mom will only hear, `You’re going to die soon, so make sure you leave me an appropriate share,’ even if this is only part of the reason for asking about the estate plan,” Novick said.

Novick said talking about planning for incapacity can be a better way to approach the conversation. This means asking your mom about whether she has an Advanced Healthcare Directive (Living Will/Healthcare Proxy) or Power of Attorney in place so someone can take care of her health care decisions and pay bills in the event she is unable to do so.

If your mom agrees to meet with an attorney, the issue of the will can be raised by the lawyer, he said.

You can offer to help, Novick said, by getting recommendations for a few local estate attorneys and pre-screen them for suitability. Then, offer to take your mom to the appointment if she has trouble driving, and offer to pay the attorney fee if she is on a limited budget.

“Sometimes it takes multiple discussions on a particular topic to encourage action,” Novick said. “Rather than having a single serious conversation, which can be intimidating or off-putting, casually bring up the topic at different times.”

You can also involve others. Novick said parents are often uncomfortable talking about these issues with their children, so ask other family members, such as an aunt or uncle, or a close friend, to help bring-up the subject.

Novick said well-written estate planning documents contemplate various major life changes, changes in your financial or health status, or changes in the estate tax law.

Still, it’s important to revisit a plan when you have a major change — and divorce is certainly a major change.

Novick said unless otherwise specified, such as in the divorce Property Settlement Agreement (PSA), New Jersey law (NJSA 3B:3-14) automatically cuts out a former spouse, and all persons related to the former spouse, from receiving property or being named a fiduciary in the will. Additionally, joint property with rights of survivorship between spouses is converted to joint tenants-in-common property after divorce, Novick said. Also, a former spouse’s appointment as agent under a Power of Attorney and as beneficiary of life insurance policies and retirement accounts is ineffective after divorce. Similarly, New Jersey law (NJSA 26:2H-57) automatically revokes the appointment of a spouse as health care representative upon divorce.

But other items are not automatic.

Federal ERISA law, which covers employer-sponsored retirement plans, such as 401(k)s and pensions, preempts New Jersey state law, Novick said.

“ERISA doesn’t automatically revoke a divorced spouse as beneficiary so these accounts will be paid to the former spouse if he/she is still named as beneficiary,” Novick said.

The estate of the deceased can bring legal action against the former spouse for recovery if he/she agreed to waive any spousal rights to the ERISA plan, Novick said. Changing the beneficiary on these accounts after a divorce eliminates any uncertainty and is much simpler.

These are all items that should be revisited after a divorce, and if your mom never has, it’s all the more important that she make sure her documents reflect her post-divorce wishes, Novick said.

“These laws mean that you don’t have to worry that your dad will inherit your mom’s property under her old will. He won’t,” Novick said. “However, this doesn’t mean that the remainder of the plan is appropriate.”

He said he always recommends ex-spouses review and update their entire estate plan after divorce to make sure their wishes are spelled out clearly and are appropriate under the new life circumstances. This means preparing a new will so the distribution of property and appropriate heirs can be clarified, the use and terms of any trusts can be updated, and named fiduciaries can be reconsidered. Additionally, he said, beneficiary designations on life insurance policies and retirement accounts, as well as the named agents in a Durable Power of Attorney and Advanced Healthcare Directive, should be reviewed and updated.

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This story was first posted in November 2015.