Revising Your Estate Plan After Divorce
Revising Your Estate Plan After Divorce
Divorce estate planning is an essential part of getting divorced. Estate plans created during your marriage need to be revised with new estate planning documents. If you do not update and revise your estate plan, your ex-spouse may inherit assets. If your ex-spouse remarries, his or her new spouse and their children could inherit.
Your Last Will and Testament
After divorce, the best way to revise a will is to execute a new will, and revoke your old will. Revoking the old will can be done by destroying it (such as by shredding or burning it), or by stating in the new will that you are revoking all prior wills. If you made a will prior to getting divorced, the law in most states provides that any gift made to your spouse is automatically revoked by the divorce. However, your spouse’s gift will go to either an alternative beneficiary or the residuary beneficiary, which may not be what you wish. Therefore, it is best to make a new will that reflects your current wishes. This should include the persons or entities you wish to receive your property, the person you wish to be the executor of your estate (chances are your current will designates your spouse), and the person you would like to be the guardian of your minor children and their property.
If you die and your ex-spouse is still alive, in all likelihood your ex-spouse will be awarded custody of your children. Only if both parents are deceased, or the surviving parent is determined to be unfit, will a court appoint a guardian. The court is not required to follow your guardianship choice, but will often do so. If you have custody of your children, and don’t want your ex-spouse to have custody if you die, you should put your reasons in writing and attach that statement to your will for the judge to consider.
As with a will, a new living trust should also be created after a divorce. If you have minor children, your minor children can be beneficiaries of the new trust, and your ex-spouse can be prevented from controlling their assets.
You can designate the new trust to be the beneficiary of various assets, such as pay-on-death bank accounts, transfer-on-death brokerage accounts, and life insurance policies. Even IRAs, 401(k)s, 403(b)s, and pensions can designate the trust as beneficiary, but you need to be mindful of certain tax ramifications. There are ways to transfer an IRA to a trust that will extend the time when the funds must be distributed (and become taxable), thereby maximizing growth of the account. A living trust must contain certain language to accomplish this tax advantage.
If the divorce decree allows one party to remain in the family home (typically for life or until the youngest child attains the age of majority), a trust can also be used to shelter the property from creditors or a future spouse.
Depending upon your circumstances and goals, it may be necessary to set up more than one trust.
Your spouse is probably designated as the beneficiary on various bank and other financial accounts, life insurance policies, and possibly on real estate and motor vehicles if allowed in your state. You will need to change the designation of such beneficiaries. If you are setting up a new living trust, you may want to name the trust as the beneficiary, especially if you have minor children. Otherwise, a beneficiary who is a minor will need a guardian, and the court may appoint your ex-spouse.
Generally, retirement accounts (such as IRAs, 401(k)s, 403(b)s, and pensions) are considered marital assets and are divided between the parties in a divorce. Your divorce judgment may determine what, if any, changes you can make to the beneficiary of such accounts.
To make a beneficiary change you will need to obtain the necessary forms from your financial institution, brokerage firm, or employer.
Financial Powers of Attorney
A financial power of attorney can give your agent broad powers, such as to sell your property and remove funds from your financial accounts. If you have appointed your spouse as your agent on any financial power of attorney, you should immediately execute a document revoking the power of attorney, and deliver a copy to all of your financial institutions. This may be done even while your divorce case is still pending. If you determine it is necessary, you can execute a new power of attorney appointing another trusted person as your agent.
Health Care Documents
If you have a health care power of attorney (sometimes called an advance directive, designation of patient advocate, or health care surrogate), you probably appointed your spouse to make medical treatment decisions for you. Some living wills have a similar designation. You may revoke the document, or execute a new document appointing another trusted person as your agent. This can be done while your divorce case is still pending. Your health care providers should be notified of the change.
If your parents have their own estate plan that includes you, your children, or even your spouse as beneficiaries, they should review their plan as well. Their documents may also need to be redrafted to keep assets out of reach of your ex-spouse.
For any property with a title document (real estate, motor vehicles, boats, etc.), be sure to have the titles changed to reflect either you or your spouse as the new owner.
Sometimes divorced couples remain good friends and continue to trust each other on various matters. Nothing prevents you from leaving a gift to your ex-spouse in your will, or designating him or her as your beneficiary, your agent in a power of attorney, or custodian of minor children.
Estate planning divorce considerations include re-evaluating your entire plan and preparing and executing new documents. This should be done as soon as possible.
LegalZoom can help you revise the key documents in your estate plan after a divorce. Just fill out a questionnaire, and we’ll check your answers for consistency and completeness and send you the final documents. Our personal legal plan also offers independent attorney advice to help you update your estate planning documents.