Why you need to review your estate plan after your divorce

Beneficiary designations and estate planning after divorce

If you are like most people who are getting or have just gotten divorced, you no longer want your ex-spouse to be the beneficiary of your estate or to put your child(ren) in a position of being disinherited. if your former spouse remarries after the divorce. If her original plan was to leave everything to her spouse and then to her child(ren), her ex-spouse can still get much of her estate if she doesn’t change her estate plans after the divorce. While a divorce decree often automatically revokes any property dispositions made by your will to your former spouse (check your state law), your beneficiary designations, on things like your insurance and IRAs, will not automatically be revoked by your ex-spouse. divorce decree.

After a divorce, you should carefully review and probably modify the following items, unless you still want to leave assets to your ex-spouse:

1. Designations of beneficiaries of the following financial instruments:

• employment retirement plans
• Individual Retirement Accounts (IRA)
• Life insurance
• Annuities
• health savings accounts

2. Your will.

3. Transfer on Death (TOD) investment accounts

4. Bank accounts payable on death (POD)

5. Revocable trusts

6. Advanced estate planning structures, such as irrevocable trusts.

In most cases, you can change these items simply by requesting, completing, and submitting the appropriate form. Since employer and retirement plans can represent the largest portion of your net worth and liquid assets, it is particularly important that you change the beneficiary designations on these accounts as soon as possible after your divorce. Because these pass to the designated beneficiary by operation of contract, unlike probate, your designations supersede your will. If no changes are made, your former spouse who was originally designated as beneficiary will be entitled to the benefit, regardless of a will or trust designating otherwise.

Guardianship and remarriage issues

In a perfect world, if something were to happen to you, your ex-spouse would assume custody of your minor child(ren). However, that assumes that your ex-spouse wants to raise the children and is in a position to do so. If your former spouse is likely to assume guardianship, he or she will be responsible for providing a residence for the child(ren) and providing care, support, and education.

If you are concerned that the money you leave your child(ren) will not be used as you would like if your ex-spouse has access to those funds, you can specify in a revocable living trust (RLT) that the trustee who becomes charge in the event of your death, pay for specific items from the trust funds, such as private school tuition, extracurricular activities, a car at a certain age, college applications, and tuition. Therefore, you can protect your child(ren)’s estate by having an RLT with a trustee who will carry out the wishes you specifically designate. The money would not be paid directly to the guardian (your ex-spouse), but would be used for the benefit of the children. This also prevents your assets, which should be for the benefit of your child(ren), from getting into the hands of your former spouse’s new spouse if he or she remarries.

You should also consider appointing successor guardians in the event your former spouse is unwilling or unavailable to raise the children, or if you believe your former spouse is not a fit parent.

remarriage

If you decide to remarry, you should know that without legal documentation to the contrary, your new spouse may generally be entitled to half of your marital estate. This could mean that you could inadvertently disinherit, at least partially, your existing child(ren). Your new spouse may not end up being the guardian of your child(ren), but may receive half of the property intended to support them.

Most divorced parents generally want to leave assets to care for BOTH their new spouse and their children. You should sit down with a financial advisor and estate planning attorney to evaluate your options. An easy solution may be the use of additional life insurance to help you fulfill your desire to support both your minor child(ren) and your new spouse.

complex changes

If you have advanced estate planning structures such as Irrevocable Life Insurance Trusts (ILITs), Qualified Personal Residence Trusts (QPRTs), and Charitable Trusts, it will be very difficult, if not impossible, to modify them, as the original intent of creating these structures it was to make an irrevocable choice, usually structured to benefit both husband and wife together. It is critical that you work closely with your attorney, as well as the trustee, to explore possible options.

You should also be aware that many states have an “elective share status,” which means that a spouse (whether separated or not) will automatically be entitled to a certain percentage of your estate. However, through proper planning, there are several ways to avoid or limit the assets that are subject to elective participation, and to ensure that your estranged spouse does not receive more of your estate than he or she wishes. This is another reason why it is advisable to review your estate plan after divorce. If any of the topics raised in this article interest you, you should review your estate plan with the help of a qualified estate planning attorney and financial advisor.

By Steven M. Basche, Esq.