Planning an estate after a divorce involves adopting a different type of arithmetic. Without a spouse to anchor an estate plan, the executors, trustees, guardians or agents under a power of attorney and health care proxies will have to be chosen from a more diverse pool of those that are connected to you. Divorce and estate planning are linked in a number of important ways.
Wealth Advisor’s recent article entitled “How to Revise Your Estate Plan After Divorce” explains that beneficiary forms tied to an IRA, 401(k), 403(b) and life insurance will need to be updated to show the dissolution of the marriage.
There are usually estate planning terms that are included in agreements created during the separation and divorce. These may call for the removal of both spouses from each other’s estate planning documents and retirement accounts. For example, in New York, bequests to an ex-spouse in a will prepared during the marriage are voided after the divorce. Even though the old will is still valid, a new will has the benefit of realigning the estate assets with the intended recipients.
However, any trust created while married is treated differently. Revocable trusts can be revoked, and the assets held by those trusts can be part of the divorce. Irrevocable trusts involving marital property are less likely to be dissolved, and after the death of the grantor, distributions may be made to an ex-spouse as directed by the trust. Divorce and estate planning where there is an existing trust needs to be handled carefully.
A big task in the post-divorce estate planning process is changing beneficiaries. Ask for a change of beneficiary forms for all retirement accounts. Without a stipulation in the divorce decree ending their interest, an ex-spouse still listed as beneficiary of an IRA or life insurance policy may still receive the proceeds at your death.
Divorce makes children assume responsibility at an earlier age. Adult children in their 20s or early 30s typically assume the place of the ex-spouse as fiduciaries and health care proxies, as well as agents under powers of attorney, executors and trustees.
If the divorcing parents have minor children, they must choose a guardian in their wills to care for the children, in the event that both parents pass away.
Ask an experienced Chicagoland estate planning attorney to help you with the issues of divorce and estate planning.
Reference: Wealth Advisor (July 7, 2020) “How to Revise Your Estate Plan After Divorce”