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My father’s ‘domineering’ third wife turned our dad against us. His divorce decree said he’d leave us his house, but he put it in an irrevocable trust

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My father and mother divorced about 40 years ago. My father moved out and purchased a home that is now worth approximately $900,000. The divorce agreement, signed by both parties, called for my father in his will to leave his home to my sister and I.

Fast forward to today, my father (an attorney) has been married to his third wife for almost 30 years. She and her 2 daughters moved into his home soon after they were married. My father is now 85 and has late-stage cancer. He informed me that he has placed his home in an irrevocable trust, with his third wife named as trustee.

His third wife will also receive all of his assets, valued at around $1.5 million, as well as 60% of his annual government pension payments for the remainder of her life. Believe it or not, this pension currently pays my father just over $200,000 annually, so his third wife will receive about $120,000 annually. The government is quite generous to some of its retired workers, and with taxpayers’ money.

My sister and I will split the proceeds from a life-insurance policy valued at approximately $1 million.


‘My father is now 85 and has late-stage cancer.’

The third wife has not been on speaking terms with my sister or I for the past 25 years. Her focus has been on directing my father’s income, assets, and now substantial annual pension payments towards herself, her children, and her grandchildren. For 30 years, my father’s wife has been a materialistic and domineering force who worked hard to turn my father against my sister and I.

She has plenty of her own resources. Ten years ago, the third wife received an inheritance from her father of over $2 million. As they live off of my father’s pension and assets, the third wife’s inheritance from her father was invested and has now grown to $3.5 million. How do I know all of these facts? My father told me. He felt very guilty about the entire situation, and stated he wished he had not done as his third wife demanded.

I have the signed divorce agreement in my possession, and am wondering if, once my father passes, if I were to contest the irrevocable trust, is there a chance that my sister and I would be awarded the house?

Sincerely,

Screwed Over, But Not Surprised

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

Dear Unsurprised,

There are some things here in your control, and other things that are beyond your control. Identify the latter, and let them go. You risk stewing for years and years, otherwise. Whether your father’s estate is worth $2 million or $20 million, it’s not worth it. Do what you can, and move on.

First off, things you can control. While divorce decrees supercede post-marriage changes in life-insurance beneficiaries that go against such agreements, this situation seems more complex, given that it involves a divorce decree, a last will and testament, and an irrevocable trust.

“This is a very tough issue that depends on the specifics of the trust and the laws of the state,” says divorce attorney Randall Kessler. “But generally a court order takes priority; however, it will take a lot of effort to have the trust set aside as having been violative of the court order.”

“It might be appropriate to consider an attack by the former spouse, who is the other party to the divorce, to return to that court on a claim for contempt which is another way of saying a claim to enforce the court order and its requirement of keeping the money as directed by the court,” he adds.


‘Your father did what he did what he did because he decided to do it. Telling you that he wished he had not done what he did is not fair to you or his wife.’


— The Moneyist

If you believe this is worth the legal bills and time, then go for it and, while it’s very possible that you will get the result you want, there is no guarantee that the court will rule in your favor. “People try everything to outsmart or do an end run with divorce decrees,” Kessler adds.

Now to the other stuff. How much Uncle Sam pays government employees in state pensions? Beyond your control.You don’t want to roll the federal government into this family business too. Your stepmother’s net worth independent of your father? Her life, her money, her business.

Your stepmother’s management of your father’s estate? She was married to him for 30 years. Again, that is her prerogative, whether you like it or not, or you believe she is fair or not. Is she focused on dividing this estate equally between your father’s children? No. But it’s your father’s decision.

Let’s be clear: Your father did what he did when he did because he decided to do it. Telling you that he wished he had not done what he did is disingenuous, and not fair to you or his wife. It’s easy to blame his estate planning on a domineering wife and pass the buck so he looks better in your eyes.

People are rarely all good or all bad. We are complicated creatures, and giving yourself the space to feel less anger and more grief over what this money and your father’s decision-making process represents would help you let go of your anger and resentments.

In the meantime, try calling her “his wife” rather than “the third wife.” I understand that you have great feelings of antipathy toward her based on behavior that may or may not have been kind. If you want to lead by example, objectifying her in this way only really hurts you.

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Opinion: I took advantage of the 2020 RMD rule but now my 1099-R looks wrong — what should I do?

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Q: I took advantage of the 2020 RMD rule and returned what I had taken from my IRA thinking there would be no taxes. I just got a 1099-R showing the full RMD. That can’t be right. How do I correct it?

—Pauline

A.: Pauline,

If the 1099-R is incorrect, you will need to contact the firm that issued the statement to get it corrected. However, the 1099-R is probably correct.

Read: Are there new RMD rules this year?

Under the law, the firm issuing the 1099-R has no responsibility for reporting how much of a distribution is taxable. That responsibility rests on your shoulders as a taxpayer. The issuing firm need only report what was paid out of the IRA on 1099-R.

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That does not mean you will pay any tax. Any funds returned to the IRA by Aug. 31, 2020 is considered a rollover and is not taxable. Normally, Required Minimum Distributions (RMD) are not eligible for rollover, but IRS guidance after enactment of the CARES Act that waived RMD for 2020 changed that. The guidance stated the normal 60-day time limit for rollovers would not apply and instead instituted a fixed deadline of Aug. 31, 2020 to return such distributions and avoid taxation.

Read: It’s not too late to save on your 2020 tax bill — here’s how

I get similar questions about 1099-Rs every year. The reporting of the gross distribution looks like an error but in most cases, it is correct and the person receiving it simply hasn’t learned how it is accounted for yet.

Here’s how the accounting typically works.

As with any gross amount reported on Form 1099-R, you declare the amount that is not taxable when you file your 2020 tax return. What I hear most tax preparers would do in your situation is put the gross distribution amount from 1099-R on line 4a as per the normal procedure. Then, they would place a zero in 4b of your Form 1040, and put a note on the return near those lines that it was “returned to the IRA under the CARES Act,” “CARES Act rollover,” “CARES Act,” or simply “Rollover.”

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If you did not return all of distribution by the deadline, the portion that was not returned would be taxable. You would put that number on line 4b.

Read: 5 things to do if you inherit a Roth IRA

As I mentioned a moment ago, the discrepancy between the gross distribution reported and what should actually be taxable comes up in other situations. Three of the most common are other rollovers, Qualified Charitable Distributions (QCD), and distributions from accounts that had received after-tax contributions.

In all those cases, the reporting process looks like what I described above. You put the gross distribution on line 4a and the taxable portion on Line 4b. Then note why the numbers are different with “rollover,” “QCD,” or “See Form 8606” on the 1040. Form 8606 is the form used to determine the taxable amount of an IRA distribution when nondeductible contributions have been made to any of one’s IRA accounts.

If you have a question for Dan, please email him with ‘MarketWatch Q&A’ on the subject line.

Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.



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Video: Why Mike Novogratz sees bitcoin reaching $500,000 by 2024

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