The process of going through a divorce can be, without a doubt, one of the most painful times of a person’s life. Once the final decree has been issued, estate planning is probably the last thing on your mind.
Below is an overview of several often-overlooked aspects of estate planning which become vitally important after your divorce.
Updating your Will. Most married couples name their spouse as the primary beneficiary to their estate as well as the Executor. After your divorce, your former spouse is most likely the last person you would want to inherit your property or control the disposition after you pass. If your former spouse remarries, your assets could go to their new spouse when you die. Plus, while many state laws automatically void bequeaths upon divorce, certain states do not. It’s not enough to rely on state laws that can change during your lifetime. For all these reasons, updating your will if you have one is crucial. If you don’t have a will, this is the perfect time to have one created.
Now would also be a good time to review any specific bequests you’ve named in your will. It’s also important to consider your Health Care Power of Attorney and Living Will. In the event that you become incapacitated, your former spouse may not be the best person to make your medical decisions or carry out your end of life wishes. Update your living will to name a family member or trusted friend. Additionally, consider your financial power of attorney. This person manages your affairs if you become incapacitated. It is common for married couples to name each other. Update your financial power of attorney to name a family member or a trusted friend.
Renaming Other Beneficiary Designations. Outside of your will, many of your financial accounts such as IRAs, 401Ks, bank accounts, and life insurance policies transfer based upon your beneficiary designation. Other than your home, your retirement accounts typically represent the next largest portion of your net worth. Most employer-provided retirement plans require your spouse to be the named beneficiary, unless your spouse consents otherwise. Often the division of marital assets will include retirement accounts. Be sure to consult with both your divorce attorney and estate planner when making these changes to be sure you’re not in violation of your divorce decree. Updating beneficiaries is a fairly simple process that could prevent a big mistake upon your passing.
Guardianship of Your Minor Children. If you have minor children, you most likely named a guardian in your will. Should you pass away, your former spouse will typically be awarded custody. If you have concerns that your former spouse may be unfit, a guardian should be named in your will. While not binding, a judge may consider your wishes if you make them known. If your former spouse has addiction issues or a history of child abuse, a court could declare them incompetent and award guardianship to the person of your choosing.
Similarly, if your minor children are named as the beneficiaries of your Estate you should consider the use of a trust. Naming your parent, friend, or trusted advisor as the trustee will prevent your former spouse from having access to the children’s inheritance. Additionally, minor children and young adults tend to spend frivolously. As a parent, we would hope that our children would make good choices and not waste the money on a fancy car or boat. By using a trust, the trustee will use proper fiduciary discretion and adhere to your wishes when distributing funds from the trust to your children.
Other Estate Planning Considerations. In our modern tech world we all have a notable online presence including email and social media accounts. Often, married couples share these accounts. Updating passwords and removing your former spouse’s access is an important tip in maintaining your cyber security. Although our Cyber-Advisory services are designed for businesses, much of the advice can be scaled for personal consideration as well and offers good food for thought.
After the marital property settlement, it’s a good idea to review how your remaining property is titled. This includes joint bank accounts, the deed to your home, automobiles, boats, and any other assets requiring a title or registration. If these assets are covered by insurance, removing your former spouse as a named insured is equally vital.
Kreischer Miller’s Tax Strategies Group is available to assist you during this incredibly difficult time, working as a key member of your team of trusted advisors to deliver estate planning services that will help to make the future more secure.
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