Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated

February 10, 2020

Rising divorce rates among Americans over the age of 50 are causing more conflict in estate planning, new data shows. According to a recent survey by TD Wealth, up to 40% of financial planners say that rising gray divorce rates are leading to an increase in family strife with estate planning as the top conflict. This is a problem because minimizing discord among beneficiaries is one of the top three reasons why clients engage in estate planning.

TD Wealth surveyed 112 insurance advisors, elder law specialists, wealth managers, lawyers, trust officers, accountants, and charitable giving professionals at the 54th Annual Heckerling Institute on Estate Planning. On top of late divorce, estate planners said that tax reform and increased healthcare costs were also major challenges in recent estate planning.

“In addition to prolonged life expectancy and rising healthcare costs, this upward trend around couples divorcing over the age of 50 has created a recent swirl among the estate planning industry,” said Ray Radigan, Head of Private Trust at TD Wealth.

In Michigan, the current divorce rate is 9%. But in some states like Tennessee, up to 43% of couples go through a difficult divorce.

“Gray divorce is adding another layer of complexity to the estate planning process that already arises with blended families, designation of heirs, and the everchanging domestic structures,” said Radigan. “As a result, it’s more important than ever to proactively review and discuss the estate plans with our clients and their families on an ongoing basis.”

According to the TD Wealth survey, 39% of respondents said that divorce impacts the costs of retirement planning and funding the most. Another 7% said that divorce affects those responsible for enacting a power of attorney, and 6% said divorce impacts how Social Security benefits will be determined.

Financial planners say it’s crucial to communicate the estate plan with family members to reduce family conflict during the divorce process. Fortunately, designating beneficiaries has become less of a conflict in recent years, dropping from 30% in 2019 to 13% in 2020.

“There are a number of external influences that we must keep in mind to ensure effective estate plans,” said Radigan. “While the purpose of estate planning is concrete, the factors and threats involved are far from it. The goal for any estate planner should be to effectively cut through the noise and distractions to build stable plans with our clients and their loved ones.”

The divorce process is complicated at any age. But for divorcing couples over the age of 50, the process can be especially challenging because often the spouse is listed as a beneficiary on many, if not all, documents. Each of these documents will need to change to reflect new beneficiaries and financial plans once the divorce has been finalized.

Wills, trusts, retirement accounts, life insurance policies, and listed assets will need to be revised. Institutions and companies that have accounts and policies will also need to be contacted and updated.

According to the TD Wealth survey, up to 42% of financial planners advise their clients to consider their trusts to protect their assets from future claims. Another 20% advise planning to minimize their future capital gains tax consequences.

Trusts have become the approved way to leave property to heirs because trusts can help minimize costs and delays that are connected to the transfer of assets. Trusts also make it easier to pass on assets when family conflict is expected.

“Even when your kids aren’t expecting anything to be left to them, I have seen many family controversies that have erupted over what to do with a house,” said Victoria Fillet Konrad, founder of Blueprint Financial Planning, in an interview with The New York Times.

Family controversies over housing assets could be more common in the upcoming decade what with the current housing shortage. Up to 11% of the U.S. population moved in 2017 in search of more affordable housing and 16% of first-time homeowners are looking for new houses in urban areas. Approximately 45% of homes sold in Maui were bought by out-of-state home buyers.

“If you’re looking for a smooth transition from one generation to the next, without fights and the high cost of probate, it’s best to set up a trust,” said Konrad.

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