Estate Planning After Divorce
December was a busy month for divorce attorneys. Due to the new tax laws implemented January 1, 2019, families were scrambling to get divorced. If you were one of the masses whose divorce was finalized in 2018, now is the time to revise your estate plan. Here are some issues you should be thinking about post-divorce.
Give your divorce agreement to your estate planner
- First and foremost, your estate attorney needs to know what obligations you have to your ex-spouse in the event of your death. Getting your divorce agreement to your estate planner can be the easiest way to relate this information.
Update your health care proxy
- A health care proxy allows for someone you name to make healthcare decisions for you if a health care emergency ever arises and you become unable to communicate. Unless you want your ex-spouse making these healthcare decisions, you need to name someone else as your healthcare proxy.
Change your power of attorney
- If your old power of attorney named your ex-spouse, be cognizant of revoking them as your old power of attorney. After revoking your ex-spouse as power of attorney, you should also go the additional step of executing a new power of attorney, whether it be a relative, friend, or trusted person to act as your agent regarding your assets and finances.
Revise your will and trust
- Revising your will and trust post-divorce seems like commonsense. Remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee. You want to double-check and confirm your ex-spouse does not receive any assets if you die and has no control over your estate or trust.
Rethinking guardianship if you have minor children
- During marriage, families have no reason to think of guardianship if one or the other pass away. Post-divorce, you may choose to name your ex-spouse in your will. Even if you don’t, your ex-spouse will most likely still serve as guardian of your minor children if you pass away unless he or she is determined by the court to be unfit. However, if you have a bad divorce, or your ex-spouse has a drug abuse problem, you may want to name someone other than your ex-spouse as the guardian.
Make sure you have a trust in place for minor children
- If you do not have a trust for your minor children, and your ex-spouse is the children’s guardian, he/she will have control of the children’s finances until they turn 18. Most clients do not want their ex-spouse in a position where they are controlling their children’s monies. You can avoid this situation by setting up a revocable trust that can name someone of your choosing as trustee to access and control the money for your children if you die.
Attention to life insurance requirements
- Even though many attorneys account for life insurance guidelines in parties’ separation agreements, many folks completely ignore or forget this small section. Forgetting about changing your life insurance obligations can be a very costly mistake to your family. Review your obligations to maintain life insurance under the divorce agreement with your estate planning attorney and if there is any confusion, meet with your divorce attorney to help you figure out the proper way to make sure your life insurance requirements are met post-divorce.
Beneficiary designation check
- Often people forget about or ignore their retirement plan beneficiary designations. Make sure your 401K and IRA beneficiary designations are consistent with the terms of your divorce agreement. I have encountered many situations where post-divorce people never update their beneficiary designations after the divorce, and they pass away. This can result in unforeseen consequences and litigation to correct who the beneficiary should have been. If you live in a state that automatically allow for a divorced spouse to be removed as the beneficiary in these instances, you still have to prove that to financial institutions that administer the account, which can be costly and time consuming. If you have a great relationship with your ex-spouse and would like to keep your him/her as the beneficiary, you should execute a new beneficiary designation dated post-divorce. To further show your intent, it would also be beneficial to leave a letter of intent with your attorney, to prevent any confusion and show your intentions are clear.