Everyone, regardless of their family dynamics, marital status, or financial means, will benefit from having an estate plan.  If you’re already divorced or are in the process of getting divorced, updating your estate plan will be an essential part of your post divorce financial planning.

What Is An Estate Plan

An estate plan is comprised of a number of documents, each with a different purpose.  These documents are a will, a power of attorney, a health proxy or health directive, and, for some, a living trust.  We’ll delve into each of these in a moment.

Most people think an estate plan is something that you’ll only need when you die.  In fact, a good estate plan can also protect you and your assets if you become incapacitated or can’t make decisions for yourself.

Hopefully, you had a proper estate plan in place during your marriage.  Now that your life has changed, you’ll want to review your estate plan as part of your post divorce financial planning, to make sure it reflects these changes.

Give your divorce agreement to your estate planning attorney

You’ll want to give the attorney that will be creating your new estate plan a copy of your divorce agreement, so that he/she will know what obligations you have to your ex-spouse if you die.

Your Will and Trust

As you probably already know, a will is a legal document that sets out how your assets will be divided after your death.  If you have minor children, it can also appoint guardians for them.

Your will should include the designation of an “executor,” who has the responsibility of carrying out the provisions of the will; one or more beneficiaries, who will inherit your assets; instructions for how and when your beneficiaries will receive those assets; and one or more guardians for your minor children.

Your estate planning attorney will execute a new will as part of your post divorce financial planning.  Your old will can be revoked by stating in your new will that you’re revoking all prior wills. Because the laws regarding the provisions of a will post-divorce vary from state to state, you should make sure that you have your new estate plan completed promptly after your divorce is finalized.

If the estate plan you had during your marriage included a trust, your estate planning attorney may also recommend establishing a new trust for your post divorce financial planning.

A revocable living trust is sometimes included as part of an estate plan.  A revocable living trust is a legal document that can be changed as long as you’re alive.  They’re typically used to help you transfer assets to your beneficiaries outside the probate process, and to protect your – and your beneficiaries’ – privacy.  They can also help minimize estate taxes.

You may have created an irrevocable trust before your divorce, such as an irrevocable life insurance trust (or “ILIT”), and named your ex-spouse as a beneficiary of that trust.  Because the trust is irrevocable, your ex-spouse’s property rights were determined when assets were transferred to the trust, and can’t be changed. Your new estate plan should specify that a divorce will remove the current spouse as a beneficiary, and that references to “spouse” mean the person to whom you’re currently married, not a specific person.

Need guidance financially preparing for or navigating a divorce?  Contact our team at Springwater Wealth today to learn how we can help.

 

Update Your Power of Attorney

A financial power of attorney gives someone the authority to make financial decisions on your behalf, when you’re unable to do so.  This power can be very broad, and can include the right to sell your assets and remove money from your bank and investment accounts.  In the estate plan you had when you were married, you almost certainly gave your spouse this authority.  Now, as part of your post divorce financial planning, you’ll want to select someone you trust to take on this role.

Update Your Health Directive

A health directive – sometimes called an advance directive or health care power of attorney – allows you to name someone to make health care decisions for you, in the event you’re unable to do so for yourself.  In the estate plan you had when you were married, you almost certainly named your spouse to do so.  Now, you’ll want to select someone you trust to take on this role.  You’ll also want to notify your health care providers of the change.

Update Your Beneficiary Designations

While a will is an essential part of every estate plan, many types of assets will pass from you to your intended recipient via a written beneficiary designation.  These assets include retirement accounts like 401(k) plans and IRA, “pay on death” bank accounts, “transfer on death” brokerage accounts, and life insurance policies.

To name a new person to inherit these assets, you’ll want to request new beneficiary designation forms from your bank, brokerage company, or employer, and return them as soon as possible.  Keeping your beneficiary designations current is an important part of post divorce financial planning.

Review Your Life Insurance

Your divorce agreement may include a requirement that you or your ex-spouse maintain a life insurance policy, naming the other as a beneficiary.  You should periodically review these obligations and the policies in place.

Rethink guardianship if you have minor children

If you don’t have a trust for your minor children, and you’ve named your ex-spouse as the children’s guardian, he/she will have control of the children’s finances until they reach age 18.  Since you probably won’t want your ex-spouse controlling your children’s finances if you die, you can have your revocable living trust name someone you’ve chosen as trustee to access and control the money for your children.