Estate Planning After Divorce
The divorce is final. You want to relax and take a deep breath. You want your fresh start to begin, finally.
But before you close the chapter and put the divorce in the rearview, check one final thing: your estate plan. You may discover that your ex-spouse is way more involved in your life than you thought.
You and your attorneys need to take a good hard look at your estate plan, from your will to living trust to powers of attorney or advance directive, to make sure your ex-spouse isn’t in a position to inherit property or retain powers you didn’t intend to give and have.
It’s best to look at it as another step to ensure you are starting anew. Your plan will now reflect your new life.
There are a few things to be aware of, though. You must comply with your divorce decree, including any agreements made in a marital settlement agreement. If your divorce decree or settlement agreement says you must keep your ex-spouse as the beneficiary of your life insurance policy, that cannot change. Likewise, if you promised in the settlement agreement to name your ex-spouse as a beneficiary of your insurance policy, you must follow through.
If your divorce decree or settlement agreement named a guardian for your young children if both parents die, or if it contains other custody arrangements, it would constrain guardianship choices in your will.
Wills: Out With The Old, In With The New
First things first: revoke your old will.
In some states, a divorce will automatically cancel any gifts to your ex-spouse. The property will automatically be ceded to the alternate beneficiary you named. If you didn’t indicate an alternate beneficiary, it would go to the residuary beneficiary.
But in these states, divorce does not cancel your will. It simply cancels gifts to the former spouse. Your will remains valid.
Don’t be complacent if you live in one of these states just because of the existence of an alternate or residual beneficiary. Problems could remain.
Make sure you want the alternate beneficiary to receive these gifts. Should you remarry, your surviving spouse could be left in a bind. Some states do not cancel gifts to an ex-spouse after a divorce. That means your ex-spouse would still be in line to receive the inheritance.
The simplest, most efficient step after a divorce is to revoke the old will and create a new one
Guardianship For Minor Children
Drawing up a new will is the perfect opportunity to appoint a personal guardian and property manager for any minor children you have. The guardian takes care of the children while the property manager looks after any inheritance the children may receive. Often, but not always, the same person fills both positions.
It should be noted that custody and guardianship decisions spelled out in a divorce decree or settlement agreement supersede your will.
If you share custody with your ex-spouse, it would be best to name each other as the guardian and nominate a successor who would take over in the event both of you die.
If you have sole custody of your children, you can name a guardian in your will, but that may not hold up in court and will often defer to the surviving parent.
Revoke Your Living Trust And Start Over
Revocable living trusts are much like wills in a sense. They are legal documents that indicate who you want to receive your property at death.
More than likely, if you and your ex-spouse made a joint living trust, part or all of the assets held in that trust were likely divided as part of the divorce settlement. Quite possibly, it has already been dissolved.
If it hasn’t been dissolved or revoked, it is time to revoke it and build a separate living trust that suits your new life.
Create New Powers of Attorney and Advance Directives
Powers of Attorney (POA) are vital in estate planning because they allow someone to make decisions for you if you are incapacitated and can no longer make those decisions. The best person for that role may be someone other than your ex-spouse.
In some states, that designation ends with a divorce, but it is vital to ensure that it ends by revoking it and creating a new one. Even if you want your ex-spouse to have your POA, it is best to name them in a new one.
To do this for a financial POA, one that designates someone to handle your financial matters, take these steps:
- Write and sign a notice of revocation.
- Give a copy of the revocation notice to the former agent and any third parties with the old POA.
- Make a new POA that revokes the old one. You will probably need to sign the new one in the presence of a witness or a notary.
- Record the new POA in any county land offices the old one was filed.
- Give the original copy of the new POA to your new agent and preserve a copy for your files.
- If your new agent can conduct real estate transactions, record the new POA in the county’s land records office where you own real estate.
Medical POAs, which give authority to someone to handle your healthcare decisions, vary vastly from state to state and you will need to take a close look at the laws of your state before making a decision.
Some states combine a medical POA with a living will, which states your wishes regarding medical treatment and end-of-life care. These are sometimes called an advance directive or an advance healthcare directive.
You need to research your state’s specific health proxy or advance directive for more information on how to revoke it. It usually can be done in one of two ways: sign a document that revokes the advance directive or physically destroy the existing document. Regardless of how the old advance directive is revoked, you should create a new one, notify old agents and healthcare providers in writing and provide copies of the new directive to new agents and healthcare providers.
Review Your Accounts
This is a must: review the beneficiary designation of any asset you own that will pass directly to inheritors, separate from the gifts in your will or living trust. This is a large group and may include the following:
- Life insurance policies
- Bank accounts
- Certificates of deposit (CDs)
- Retirement plans like 401ks, IRAs, and pension
- Real estate for which you’ve created a transfer-on-death deed
- Vehicles for which you named a transfer-on-death beneficiary
If you want to change a beneficiary from your former spouse to someone else, the process can be as easy as filling out a new beneficiary form. But, again, pay attention to how marital assets were divided during divorce. You can’t make a change counter to those agreements.
Show special care when dealing with 401ks, pensions, employer-maintained life insurance policies, and any plans governed by the Employee Retirement Income Security Act (ERISA). That’s a federal law, and state laws that automatically void gifts to ex-spouses do not apply in this realm.
All of the above may seem overwhelming. It may seem like a massive amount of work. But it’s doable and must be done. The absolute best way is to retain an experienced estate planning attorney. They can easily guide you through the process, ensuring that everything is up-to-date and accurate.
As your family office, Hutchinson Family Offices will work with you and your attorney to create the most beneficial long-term plan for your financial needs.
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