Whenever you experience a major life event, the aftermath of that event is often a good time to take a step back and take a look at your estate planning. The changes in your life that this event has brought about may mean that you need to make changes in your estate plan, as well. By making sure that your plans are updated, you can be sure that your plans reflect your life and goals as they now exist.
The best estate plans often are the result of an ongoing process. For most people, a truly optimized estate plan isn't a “get it and forget it” process. Even after you've created your comprehensive estate plan, you may still need to alter or replace some of your documents later. This is especially true if you've experienced a life event like divorce. Divorce is one of those types of events that can have wide-ranging impacts due to the fact that it often impacts you both personally and financially, just as your estate plan reflects a mixture of personal and financial goals and desires. With that in mind, here are a few estate planning thoughts to consider after you've experienced a divorce:
- Do I need to modify my distribution plans?
- Do I need to modify my fiduciary or agent designations?
- Do I need to modify my plan based upon tax planning concerns?
- Besides my will or trust, what other planning documents do I need to review after my divorce?
- I don't yet have a plan. What should I do?
Almost certainly yes. Outside a few extremely narrow exceptions in some states, the law says that you are required to leave a distribution to your spouse so, whether your plan called for your spouse to get everything or only a fraction, now that your spouse is now your ex-spouse, a review is in order. Depending on what and how much you planned to leave to your now-ex-spouse, you may have to give some thought to who will get the things you'd previously intended for your spouse. Additionally, some states automatically invalidate any estate plan involving a spouse who later becomes your ex-spouse. So, if you and your ex are still close post-divorce and you still want to include your ex in your plans, you definitely need to consult an estate planning attorney about updates.
Probably. Most people give their spouses fiduciary duties and agent roles within their estate planning documents. A spouse may be named as a successor trustee, an executor, an agent under powers of attorney, or all of the above. Failing to update these fiduciary/agent designations could mean that your ex still holds these powerful personal, end-of-life and/or financial decision-making powers or, if your state automatically invalidates these provisions upon divorce, that you have no one named in these roles.
Possibly. The tax laws give married people certain advantageous treatment that unmarried people don't get. There's a possibly that your shift from a married person to an unmarried one could open the door to possible estate tax liability, if your total estate is big enough. If that happens, there are certain steps you can take to reduce or even eliminate your potential estate tax liability exposure. One example is the purchase of life insurance and the utilization of an irrevocable life insurance trust. Whether or not you use this technique, you may want to review your plan to check on how your divorce has impacted your tax planning needs.
You should check your powers of attorney and your living will. If they assign duties to your ex that you no longer want him/her to have, then you'll need to explore making changes to those documents. Beyond just wills, trusts, powers of attorney and living wills, there's still more to check, as you also need to review your non-probate-transfer assets. This includes your life insurance, annuities, qualified retirement accounts, stock accounts, bank accounts, real properties with transfer-on-death deeds… basically any asset with a death beneficiary designation on it. Some (but not all) states say that a divorce automatically wipes out certain estate planning provisions involving a spouse who later becomes an ex-spouse. Even in those states, though, that may not apply to non-probate assets. In some circumstances, the law says that the person named on the most recent death beneficiary designation form attached to an asset gets that asset upon your death, regardless of what that person's legal relationship to you is at the time of your death.
Get one, and get it without delay. There are many reasons for this. If you have minor children, then you'll want to make sure that you have a will that designates the person you want to serve as your kids' guardian. If you have no children at all, you'll probably want explore having a plan. Intestacy laws seek to distribute the deceased's assets to the closest living relatives. If you have no living parents or siblings (in addition to no spouse and no children,) then your assets could possibly all go to some distant relative with whom you have little or no relationship. Also, as noted above, an ex-spouse is considered a legal “stranger” to you. If you and your ex have remained close, even after the divorce, and you still want to include him/her in your estate plan, or have him/her serve in an agent and/or fiduciary capacity, you'll need to have plan documents that state these intentions clearly. These are but a few reasons to get a plan in place after your divorce.