Estate Planning After Divorce
Divorce is a stressful and emotional time for everyone involved. Once you and your spouse have decided to part ways, it seems as if there are many decisions and never-ending paperwork involved. You’ll likely have to divide and retitle joint assets, sell and or refinance your family home, take care of any custody issues with minor children, and more. To break off into your separate ways, all of these tasks and much more need to be completed.
Estate planning after divorce is a critical task that a lot of people forget about. The last person you want to receive your estate is your ex-spouse, and you likely don’t want them making any end-of-life decisions on your behalf. If you neglect to update your estate planning documents, this is what will happen. A few states have laws that make sure your ex-spouse does not inherit your estate. However, not all states have them, and they may not apply to all of your assets. The only way to be sure about your assets are going to who you intend to receive them is to update your estate plan.
What To Do About Beneficiary Designations When Estate Planning After Divorce?
Beneficiary designations are an important consideration when estate planning after divorce. Any assets with a listed beneficiary (life insurance, retirement plans, bank accounts with a pay-on-death order, investment accounts, and more) do not pass through your Will or Trust. Instead, they are paid directly to the beneficiary unless the person listed is a minor or has predeceased the owner of the account/policy. If you were married when you created the account or policy, you likely need to update the beneficiary designations unless you agreed otherwise in the divorce. To change your beneficiaries, you will need to contact the company. You’ll want to think carefully about who you list as your beneficiary because who you pick may be crucial.
What Are The Best Practices If You Have Minor Children?
Estate planning after divorce is critical if you have minor children. That’s because if you have minor children at the time of your passing, the court must establish who will be the child’s guardian until they are the age of 18. When they turn 18, they will receive their inheritance and spend it however they choose. Your ex-spouse may be named the child’s guardian, and they will manage the child’s funds until they become an adult.
If you name a family member or other individual as a beneficiary and leave money for them to care for the children, there is no guarantee that the person will use it for this purpose, so this is risky. In addition, depending on the value of the asset you give, it may have adverse tax consequences for the person receiving it.
If you have a Trust, naming it as a beneficiary is a much safer option. The Trustee can be held accountable if they abuse the Trust’s assets. If you have a Trust, your ex-spouse won’t have access, and you may also choose when your children receive their inheritance. Any money and assets that stay in the Trust are protected.
What Should You Do About Retirement Accounts?
When estate planning after divorce, not naming the right beneficiary on your retirement account can have tax consequences. After your passing, the beneficiary must withdraw the account within ten years, and all must be taken out in the 10th year. In some situations, the beneficiary may qualify for special treatment, and the account may be withdrawn throughout the beneficiary’s lifetime. A retirement account can be complicated, so it’s best to speak with an experienced estate planning attorney before making any decisions.
What Should You Do About Your Will and Living Trust When Estate Planning After Divorce?
If you don’t update your Will or Trust when estate planning after divorce, your ex-spouse will likely inherit your estate. If your ex-spouse remarries and you pass away, your estate could potentially go to their new family, and you accidentally disinherit the people you love.
You need to name a guardian in your Will if you have minor children. If one parent passes away, the other typically becomes the child’s guardian. However, if your ex-spouse has passed away or has had their parental rights terminated, the court will appoint a guardian on your behalf.
How Should You Handle Medical Power of Attorney and Living Wills When Estate Planning After Divorce?
When you create a Medical Power of Attorney, you appoint someone to make medical decisions for you if you are incapacitated and can no longer make them for yourself. In most marriages, spouses name each other. However, if you’re estate planning after divorce, you likely don’t want your ex-spouse making health and potentially end-of-life decisions for you. Instead, you can appoint a family member or close friend to be your Medical Power of Attorney.
Should You Change Financial Powers of Attorney?
Like a Medical Power of Attorney, married couples typically appoint each other as their Financial Power of Attorney. There are many powers that the agent has. Some of these are the ability to buy and sell real estate, open and close any financial accounts, change beneficiaries, and collect government benefits. Again, you can always name a family member or close friend as your Financial Power of Attorney.
Get The Help Of A Professional When Estate Planning After Divorce
If you’re recently divorced, you probably don’t feel like dealing with attorneys for a bit. Nonetheless, you shouldn’t put off updating your estate plan after divorce. Instead, you should consult with an experienced estate planning attorney as soon as possible to prospect your family and loved ones. If you had a complicated divorce, you should consult with an attorney first before changing your estate plan. If you don’t, the mistakes could be costly, and you could potentially violate your divorce agreement.