Recently Divorced? It May be Time to Revisit Your Estate Plan
If you have recently gone through or are currently navigating a divorce, you may be feeling overwhelmed, exhausted, and tired of meeting with lawyers. It seems like there is so much to do: separate assets, sell or move homes, negotiate a custody agreement, and settle daily living expenses. It is a lot, but there is one more thing that is often overlooked and is equally as important: updating or creating an estate plan.
You may have already been through this process with your former spouse. If that’s the case, it is very likely that your estate planning documents state preferences that are no longer ones you would choose. In most instances, estate planning documents can simply be revoked and replaced by new documents. However, this is something that should be done right away as a part of the divorce process.
If you have never drafted an estate plan before, now is definitely the time! A well-documented and carefully tailored estate plan is recommended for just about everyone, but for someone who has been recently divorced, an estate plan is essential. Without these documents, the laws of the state determine how your assets will be treated, who will inherit your estate, and who will take guardianship of your children. Because these default laws often do not take into account family circumstances like divorce and remarriage, they will very likely create a result that is not preferable.
Regardless of how you leave things with your ex-spouse, it is unlikely that you want him or her making financial and/or medical decisions on your behalf or inheriting the bulk of your estate. Going through a divorce is one of the most important life events that should trigger a visit to your estate planning attorney.
Updating Your Will
Much of the property you own jointly with your spouse will be retitled or sold during the divorce process. Once the distribution of assets is completed, this is the time to revisit your will and make sure that your estate will be distributed to individuals you choose. Do not try to transfer title to property during the divorce proceedings, this may raise red flags. Instead, meet with an estate planning attorney and determine which of your assets you will retain in your estate and how you would like to distribute them when you pass.
Providing for Minor Children: Guardianship and Trusts
Having minor children with your ex-spouse makes divorce that much more complicated. However, once matters regarding custody have been settled, it is also important that you update your estate plan to ensure that your assets will serve your children well and that they will be cared for by a trusted adult if something should happen to you or their other parent. If you have minor children, you will want to designate someone to serve as guardian in your will. The children’s other parent will likely be given the first right of custody; however, if he or she is unwilling or unable to take custody, your guardianship designation can help the court choose a trusted person to take custody of your children.
Any assets that you choose to leave to your children will not be immediately transferred to them if you die before they reach the age of 18. Instead, the court will appoint a custodian to manage the assets until the children turn 18. However, if you are concerned about your children inheriting a major windfall while they are still teenagers, there are steps you can take to ensure long-term care and support for your children.
A trust gives you control over how funds are distributed and used. This gives you more influence over your children’s future, including education. In the trust documents, you can name a trusted individual or financial institution to act as the trustee and distribute assets to your children in accordance with your instructions. If you want to leave minor children any accounts or life insurance policies, you can name the trust as a beneficiary to ensure that the funds will be managed properly.
If you and your ex-spouse had already set up a trust to benefit your children, you will likely want to change the terms and/or trustee after your divorce. To do so, you may need your ex-spouse’s written permission or to give notice to alter the terms.
Updating Beneficiary Designations
After a divorce, it will be important to revisit any financial assets you may have held with institutions. These institutions often keep a beneficiary designation form on file that indicates who should receive the assets once you pass. These designations, often on file for stocks, brokerage accounts, bank accounts, and retirement accounts, are the final determination on how these assets are distributed. Even if you change your will, the named beneficiary on these forms will control. For this reason, it is essential that you update your forms for each one of your financial assets. Request copies of the updated beneficiary forms for your records.
Healthcare and Financial Decision-Making
Often, married couples designate one another on documents such as durable power of attorney, advance healthcare directives, and living wills. This gives your spouse the power to make financial and medical decisions if you become incapacitated. However, once you have divorced, it will be important that you revoke and replace these documents, naming someone else such as a parent, sibling, friend, or adult child.
Durable power of attorney allows the named person to handle your finances should you become disabled. This is likely not a role you want to confer on your ex-spouse, so any old versions of power of attorney should be revoked.
Similarly, an advance healthcare directive names a healthcare proxy who is empowered to make healthcare decisions for you if you are unable to do so. Again, you may want to name another trusted adult rather than your ex-spouse.
While your living will may not change, as this is a statement of your preferences regarding life support and end-of-life care, you may want to revisit your living will to ensure that you include a new HIPAA authorization. The HIPAA authorization allows medical care professionals to discuss your care with a designated individual.
Managing Digital Assets
Much of your financial, intellectual, and sentimental assets may be held in online accounts. This can include email accounts, social media accounts, cloud storage, online banking, and entertainment products. If you and your former spouse shared passwords or online accounts, this is likely something that you will want to update after your divorce. You may also need to notify service providers to remove your former spouse from accounts so that he or she cannot make changes or decisions without your approval.
Life Insurance and Retirement
During your marriage, it is likely that you named your former spouse as beneficiary for a number of assets. These may include financial benefits provided through your employer. Contact the human resources department and ensure that they know that your former spouse should be removed as beneficiary on all benefits such as pension, stock options, life insurance, and retirement accounts.
Once these changes have been made, make sure you request a copy of the updated forms for your records.
For your retirement account, it is possible that the funds accumulated during your marriage may be considered marital property. You may need a court order or waiver from your former spouse to be able to change the beneficiary designation.
Not Quite Divorced Yet? There are Still Steps You Can Take While Separated
A separation agreement, even prior to a final divorce decree, can terminate some marital privileges and benefits. For this reason, you are able to begin making estate planning changes prior to the completion of divorce proceedings. If you have divorce proceedings pending, it is not advisable to move any assets around. However, you can begin making changes such as revoking and updating your power of attorney, healthcare directive, and living will.
Work with an Attorney You Trust
At this point, you are probably feeling fatigued with all the discussion, planning, and attorney meetings. Because estate planning is so important, make sure you choose an attorney who is empathetic and trustworthy. Speak honestly to your attorney about your goals and your preferences. Estate planning is a process, so everything doesn’t need to be done right away. An attorney can help you create a plan that can be implemented over time and that can be adapted as your life and wealth change. You never know what the future will bring, so it’s important to choose a person who you won’t mind checking in with throughout your life. If you are going through a divorce and are ready to talk about your estate plan, reach out to Wakefield Law at 703-771-9740.