Estate Planning for Divorcing Families
Divorce can turn a sound estate plan upside down, so divorcing families must consider changing and updating their estate plans. Several titling issues must be resolved after a divorce. Property that was once jointly-owned by both parties is now under the ownership of one party. The Beneficiary or agent, who was most probably the other spouse, must be replaced and updated. If a divorcing party owns property in several states or has minor children, he or she should consider establishing a trust.
Updating the Will
Most married persons designate a spouse as the sole beneficiary of their property. After a divorce or legal separation, however, maintaining this intention is likely impossible. Although some states have a law that bars ex-spouses from getting most inheritances, this law is enforceable only when the divorce process ends. If a person is legally married, even if he or she has already filed for divorce or separated ahead of divorce, the surviving spouse may still file a legal claim for a share of his or her estate if death occurs.
If a divorcing person doesn’t have a will, he or she should get one drafted. Dying without a will is known as dying intestate. In some states, part or all of the estate of a person who has died interstate goes directly to his or her spouse. If that person died intestate before a divorce was finalized, then his or her spouse may take over a big portion of his or her estate. The reason is that a person is considered still married until the divorce process is complete.
Reviewing Healthcare Directives and Powers of Attorney
Reviewing healthcare directives that enable a selected person to make crucial health care decisions is important. Powers of attorneys that give a designated party the authority to perform financial transactions should also be relooked. The aim of doing this is to remove an estranged spouse from those crucial roles.
In certain states, the spouse or domestic partner designated as health care representative loses his or her power following a divorce, legal separation, or cessation of the domestic partnership, unless otherwise stated by the healthcare directive. In other states, an agent’s power of attorney becomes void when a motion is filed for the termination of domestic partnership or marriage between the agent and the principal unless otherwise stated by the power of attorney. Rather than relying on state default statutes, adjusting the estate planning documents to ensure they are in line with the intent is advisable.
Establishing a Trust
A trust is essential for divorcing families with minor children as it promotes thorough planning for future allocations to minor children. Having a trust in place can be helpful for a divorced person who opts to remarry. It can be established through a will, as a stand-alone document, or through “testamentary trust.”
A trust enables a divorced party with sole custody of his or her children to plan for the future care of the children should he or she die or become incapacitated. It also enables the single parent to designate a third-party as Trustee to distribute funds to the children, if they have attained the legal age, or to their caregivers, if they are still minors, based on provided instructions. Through a trust, a single parent can promote specific behaviors such as graduating from college or university. He or she can also plan for major life events, such as his or her children’s wedding.
Reviewing Retirement Plan Beneficiary Designations
Divorcing or legally separating spouses should ensure their beneficiary designations in their retirement plans reflect the provisions of their divorce agreements. Incidents of divorced individuals dying before updating beneficiary designations are common. This usually leads to unanticipated repercussions and a costly legal process to determine who should have been the beneficiary. Changing and updating the beneficiary designations immediately after a divorce is the best practice.