Estate Planning During and After Divorce: Essential Financial and Legal Factors to Consider Part Two: After Some Time

Now that you have had time to adjust to life after divorce, there are some essential financial and legal factors to consider. Legally, your marital status has changed. You are a single person. You will now file taxes individually, you will apply for credit individually, you will buy property as a single person. These changes can have noticeable influence on your tax obligations, your investments, and especially your estate plans. It is always wise to review and update your estate plan after major life events, but it is especially important to do so after divorce. If you do not yet have an estate plan in place, now is the time!

Review your estate plan. Upon your divorce, you should review and change your Will and/or Trust beneficiaries to recognize your post-divorce wishes. You willwant to make sure that you name trusted individuals in writing who will take care of you and your children if you were to become incapacitated. Your choice of your minor childrens’ guardians may have changed, and you certainly want someone to manage your assets for the benefit of your minor children if something were to happen to you.

In most cases, parties to a divorce no longer wish for their ex-spouse to be a beneficiary to their estate. Furthermore, your children could end up disinherited if you or your ex-spouse re-marry following the divorce. If your original plan was to leave everything to your spouse and then to your children, you should modify your estate plans following divorce to reflect your new wishes.

If you had a marital estate plan, you probably took steps to ensure that your spouse inherited from you. Now that you are divorced, make sure to review and change your beneficiary designations to reflect your new wishes concerning the distribution of you:

• Employer retirement plans;
• Individual Retirement Accounts (IRA);
• Life insurance;
• Annuities and Pensions;
• Health savings accounts;
• Transfer on Death (TOD) investment accounts;
• Payable on Death (POD) bank accounts.

You will also want to double check your employer-provided benefits and update those beneficiary designations as well. In most cases, changing these items is as simple as requesting, completing and submitting the appropriate form to your human resources department at work. Since retirement and employer plans often represent the most significant portion of an individual’s net worth and liquid assets, it is particularly important to amend the beneficiary designations on these accounts.

Documents that will need to be revoked and redrawn:

• Your Will;
• Health care powers of attorney and living wills;
• Financial powers of attorney;
• Revocable trusts;
• And, advanced estate planning structures such as irrevocable trusts.

You will also want to immediately update or create:

• Medical and general powers of attorney: Generally speaking, you probably no longer want to leave your health care or financial decisions in your former spouse’s hands. It is therefore imperative that amongst the documents to be amended are your advanced health care directive and durable power of attorney.

• Guardianship and re-marriage issues: In a perfect world, if something happened to one parent, the other parent would assume guardianship of the minor child. However, that assumes that the non-custodial parent desires to raise the child and is fit to do so. If your former spouse will likely assume guardianship, they will be responsible for providing a full-time residence for your child, as well as provide for their care, support and education. If you are concerned your former spouse will not use monies left to your child as you would wish, you can create a Revocable Living Trust (RLT) and designate your successor trustee to provide for specific items out of the funds of the trust such as private school tuition, extra-curricular activities, a car at a certain age, college applications and tuition. As a parent, you can protect your child’s inheritance by having an RLT in place with a trustee to carry out your wishes. This also protects your assets, which should be for the benefit of your children, and not for the benefit of your former spouse’s new spouse and his or her children, should he or she remarry. You should also consider naming successor guardians in the event your former spouse does not want to raise the kids or is otherwise unavailable.

As always, The Harris Law Firm is here to partner with you to assist you with your post-divorce estate planning needs. Let us know how we can help.