How does divorce affect your estate plan?

Occasionally, we meet with clients who ask how divorce would affect their estate plan.

Here’s the short version:

  1.  Wills and Trusts: Upon the entry of a final judgment of dissolution, an ex-spouse is treated as he or she predeceased the testator, thereby removing him or her as a beneficiary of an estate/trust. Ex-spouses can elect to maintain provisions for each other, although that is not common.
  2. Beneficiary designations on life insurance policies, annuities, IRAs, 401ks and other employee benefit plans: Same result as the Statutes for Wills. Ex-spouses are not entitled to these assets when a divorce if finalized. One practical difference – insurance companies and retirement plan custodians do not always know that their insured/client was divorced. As a result, they might allow an ex-spouse to collect this type of asset. If that happens, secondary beneficiaries will need to sue a testator’s ex-spouse for a recovery.
  3. Powers of Attorney and Medical Directives: Upon the filing of a divorce, provisions in favor of a spouse are nullified. Notice that these documents are affected when a divorce is initiated not upon completion.

While these law changes are helpful, they are really just a band-aid, of sorts, for those who may not get around to updating their estate planning upon divorce.  In reality, when you experience a significant life event, such as a divorce, a complete review of your estate plan, including beneficiary designations and asset titling, remains important and necessary.

Do Wills Avoid Probate?

We have talked with several clients recently who mistakenly believed that having a Will eliminates probate at the time of their deaths. Last Wills are particularly useful documents, but they do NOT avoid probate.

Probate is a process in which the local probate court supervises the transfer of probate assets when someone dies. Probate assets are individually owned assets with no beneficiary designation. For example, if I own a bank account in my name alone, that asset is subject to probate at my death. My wife needs to go through probate to get that account.

Last Wills tell the probate court who is supposed to get those individually owned assets. If one dies without a Will, then we look at the State statues to figure out who should get those assets. These statutes are called the intestacy statutes. Think of them as the State’s free Last Will for people who did not have a Will.

In either case, if an account owner has died, no one has legal authority to access that account. This is where probate comes in. The court will appoint a personal representative (or executor) to have authority to access an account and retitle it either pursuant to a Will or the law of intestacy.

How do you avoid probate? You can do this by owning assets jointly with another person or naming a beneficiary on an account.  You could also use a Revocable Trust.

How do you know what is best? Give us a call – we’d love to help you and your family!

Are you a procrastinator?

Don’t feel bad – most of us are, at least with some things. We struggle on a regular basis getting clients to finish their planning. We know that some of it due to procrastination. After all, why finish something today when you do it tomorrow, especially if it involves thinking about death?

This thinking, of course, does not make sense, but we know that this is not uncommon. Accordingly to the National Center of Health Statistics, we should live 78.6 years. If you just so happen to live to that age, then you can do your estate planning when you are 76 or 77.  In our family, though, we know that death can happen at any time. My dad was only 36 when he died, my wife’s dad was 39.

I think that a problem with procrastination is that you are going to have to face whatever you are putting off at some time or another. If you are putting off having your Last Will drawn, then you might find yourself working it at a very stressful time – maybe when you have been diagnosed with a disease or just before you need surgery.

Rushing your planning could result in missing something important. Good planning should take some time so that you can think about different options that you may wish to explore. For example, do you want monies to be held in trust or distributed outright to your beneficiaries? If you do leave funds in trust, for how long and who will be in charge?

It’s worth noting that some of your planning is probably already in place even before you think about a Will. For example, if you own joint assets, then your co-owner will receive that asset at your death. If you have life insurance or a retirement account, chances are that you have designated a beneficiary. Believe it or not, that is estate planning!

Why put off today what you could do tomorrow? Because you might not have a tomorrow!