Most people are aware that a surviving spouse is usually entitled to inherit all or a large portion of the estate of a deceased spouse. Fewer understand the effect on estates if one spouse dies during a legal separation or after a divorce. After a divorce, many neglect to change wills that specify bequests to a former spouse or their beneficiary designations for life insurance and retirement accounts. State law may dictate what will happen in such situations. However, provisions and procedures can vary substantially from state to state. Additionally, federal law may be implicated, especially when pension and retirement accounts are involved.
Minors have no legal capacity to manage property. Thus, transferring property and other assets to minors can be problematic. For example, parents or other adults may wish to convey a small amount of property to a minor without investing the time and expense of establishing a trust.
Another option is to set up a custodianship for the minor. Under a custodianship, the transferring party names a custodian and transfers the property into an account in the minor’s name. The custodian holds and manages the custodial property for the benefit of the minor. A custodial account is irrevocable and belongs to the minor as the owner.
Uniform Transfers to Minors Act (UTMA)
The Uniform Transfers to Minors Act of 1986 (UTMA) was passed in order to eliminate some limitations of the earlier Uniform Gifts to Minors Act (UGMA). All states have adopted some form of the UTMA or UGMA. The UTMA provides a convenient method of allowing the transfer of property to minors without setting up a trust.
In a custodianship, an adult custodian holds and manages property for the benefit of a minor child until that minor is old enough to receive the property. A UTMA transfer is irrevocable, and the custodian must relinquish the property to the minor as soon as they reach the age of majority, which varies by state (usually 18 or 21, sometimes 25)
The federal Defense of Marriage Act (DOMA) was signed into law by President Clinton on September 21, 1996. DOMA defines “marriage” to consist exclusively as a heterosexual union of a man and a woman. Further, DOMA directs federal agencies to recognize only opposite-sex marriages for the purposes of enacting any agency programs.
Over the years, intra-family immunity from lawsuits against other family members developed; “parental immunity” and “spousal immunity.” Some have suggested that these immunities were part of a body of rules that historically limited tort recoveries in general. At one time, there was even a certain stigma to bringing a lawsuit against another family member for damages. This radically changed in the latter half of the 20th Century, when courts (and laws) began to expand liabilities and recoveries for a number of reasons. Not all states recognized the doctrines of parental and spousal immunity from suit, but most states did. Recently, however, more states have abandoned or created exceptions to these doctrines.
Upon termination of a marriage by divorce, one of the most difficult problems is often division of the couple’s real and personal property. Although there are considerable differences in the way states treat property acquired by spouses while married, there are two common types of distribution schemes.
An increasingly large portion of the assets of married couples consist of rights to payments and stock from pension plans. In many states such assets are subject to division during a divorce. Divorce and division of property are generally controlled by state law, but pension plans are controlled by federal law in many respects.
Absent a QDRO, the amount withdrawn from the plan thus becomes income and/or capital gains to the plan participant, not the former spouse. If a valid QDRO is in place, however, the distributions from the plan are treated as income and/or capital gains to the alternate payee/spouse. However, if distributions from the plan are used to satisfy child support or payments to some other dependent of the plan participant/spouse, the distributions are still treated as taxable to the plan participant/spouse for federal income tax purposes, notwithstanding the existence of the QDRO.
According to the Child Welfare League of America, an estimated 200,000 children have a mother in prison, and at least 1.6 million children have a father in prison. As such, many children have been forced to enter the foster care system, and there has been a significant increase in the number of children visiting their incarcerated parents.