7 Key Steps - Estate Planning After Divorce
Divorce affects nearly every area of life, including your estate plan. Updating your plan after a divorce is crucial to ensure your assets go where you intend and to prevent unintended inheritances to an ex-spouse. Here are the key steps to take when revisiting your estate plan post-divorce.
1. Update Beneficiary Designations
Beneficiary designations on life insurance policies, retirement accounts, and bank accounts often take precedence over instructions in your will. Contact each financial institution or administrator to update these designations, as they may still list your ex-spouse as primary beneficiary. Make sure your chosen beneficiaries align with your goals and family situation, while following any directives given in your divorce decree.
2. Revise Your Will
Your will likely needs major adjustments after a divorce, especially if you want to remove your ex-spouse as a beneficiary or decision-maker. Consult an attorney to amend or rewrite your will. Consider updating the guardianship provisions if you have minor children, reflecting any changes in preferences for who should care for them if you’re unable to do so. Ensure these guardianship elections match your divorce decree.
3. Modify Trusts
If you have a trust, it’s essential to review it after a divorce. Certain types of trusts, such as revocable living trusts, can be modified to remove an ex-spouse as a beneficiary or trustee. However, irrevocable trusts can be more challenging to alter, depending on the terms and legal restrictions. Work with a qualified estate planning attorney to modify or dissolve trusts that no longer align with your wishes. If setting up new trusts to benefit children or other loved ones, ensure they’re structured to offer tax advantages and protect assets from future claims.
4. Reassess Powers of Attorney
Your financial and healthcare powers of attorney give someone legal authority to make financial or medical decisions on your behalf. In most cases, people name their spouse for these roles. After a divorce, it’s generally best to appoint a new, trusted individual for these roles. Update your financial power of attorney to assign decision-making authority to someone you trust to handle your finances. Similarly, review your healthcare power of attorney to ensure your healthcare preferences are respected by someone you trust to act in your best interest.
5. Update Your Living Will
A living will provides instructions regarding your medical care and end-of-life preferences. Divorce is a good time to reassess these choices and ensure your healthcare directives align with your current values.
6. Consider Financial and Tax Changes
Divorce can alter your financial and tax situation significantly, which may impact your estate planning. It’s wise to update your financial plan to reflect any changes to income, asset distribution, or tax planning that have arisen due to the divorce. A Certified Divorce Financial Analyst (CDFA) can help you plan for these changes, ensuring your estate plan aligns with your new financial reality.
7. Safeguard Your Children’s Inheritance
If you have children, you may want to ensure that your assets pass directly to them or are held in a trust for their benefit. Without careful planning, your children’s inheritance could be subject to influence by an ex-spouse or become vulnerable to creditors. Establish a trust to protect their inheritance, naming a reliable trustee to manage assets in their best interest. Update custodial accounts (such as 529 college savings plans) to ensure they reflect your current preferences for managing and distributing funds.
Final Thoughts
Updating your estate plan post-divorce is essential to protect your assets and ensure your wishes are honored. Working with an estate planning attorney and consulting a financial advisor can help make this transition smoother, providing peace of mind for the future. Additionally, be sure to follow any directives in your divorce decree related to finances, especially those related to your ex-spouse and/or children.
