Death and Divorce: two topics no one wants to think about, let alone plan for. Yet the former is inevitable, and the latter-very common.
Whether you are thinking about divorce, in the midst of it, or have come out the other side and are now single, it is time to address estate planning issues, which have been thrown into flux as a result of the divorce.
In general, estate planning involves an inventory of your assets, consideration of who you want to receive those assets when you die, and general precautions such as naming an individual to act on your behalf if you should become incapacitated, or naming a guardian for your minor children if you should die prematurely. The documents you had drawn up while you were married almost certainly do not reflect your wishes now that you have decided to divorce.
Many married couples execute reciprocal wills and care taking documents. That is, spouse and wives often leave a majority of their assets to their spouse, and name each other as decision makers in the event they become incapacitated. If you have made the decision to divorce, most likely you will not want your spouse to inherit your separate property, or your share of the community property. Whether those assets are set to pass by will, revocable trust, or even the intestacy statutes (if you die without a will), those provisions remain in effect until the entry of the divorce is final, or entry of a “status only” judgment terminating marital status.
During the divorce proceeding there is a limbo period in which the spouse you are divorcing could still inherit your estate if you die, or be in the position of making medical decisions on your behalf if you become incapacitated. After the entry of a final order the probate code provides that certain documents written in favor of a former spouse, such as a will, are automatically revoked as to that person. The problem is that until he or she is your former spouse, he or she is still a beneficiary under your will, and any “non-testamentary” transfers, such as property held in joint tenancy, and various policies or retirement plans naming your spouse as the primary beneficiary.
During this limbo period, unless you take affirmative action to revoke your will, revocable trust, and any powers of attorney, your spouse will still be your beneficiary up until the time a final order or a status only judgment has been entered. Depending on your divorce, this could be quite some time. At this point there are several steps you may take to make sure your assets do not inadvertently pass to your spouse, but to beneficiaries of your choosing.
Once you file for a divorce, in most states, you will likely be bound by automatic temporary restraining orders (“ATRO”), that place certain restrictions on modifications to your estate plan, and of course, bar major changes to the financial status quo. Once your spouse is served,he or sheis similarly restricted, but not until then.
If you or your spouse have not yet filed divorce, it would be worth considering some limited rearrangement of your estate plans (in consultation with your family law attorney to make sure the fiduciary duties spouses owe each other are not violated) before the ATRO goes into effect. The first thing you may wish to do is revoke your current will and execute a new one. This can be done at any time. Even with the ATRO in place both parties are free to create a new will, or modify or revoke an existing will. If you have set up a revocable trust for estate planning, a new trust can be set up, but not funded. (To fund a new trust after your divorce has been filed you will need the consent of your spouse, or a court order.)
Other estate planning tools may only be revoked during divorce if prior notice is given to your spouse. This includes revoking a revocable trust or severing a joint tenancy or community property with right of survivorship. Modifying certain other “non-probate transfers” during divorce, including: removing your spouse as a beneficiary from life insurance, IRAs, employee pension plans and the like, also require your spouse’s consent or a court order,
In formulating a new estate plan or making changes to your existing plan, each asset should be considered on a case-by-case basis in consultation with your estate planning attorney to see which actions are right for you and to examine the possible consequences of modifications (i.e. if you revoke a revocable trust but do not get your spouse’s consent to fund a new trust, if you die all your assets no longer held in trust would be subject to probate).
If your divorce is final and the ATRO has been lifted, your spouse is automatically written out of your will as ifhe or shehad predeceased you. The law presumes that you would no longer want him to inherit under your will, or take as a survivor of jointly held property, and his interest in your assets automatically pass to secondary beneficiaries, or under the intestacy statutes, if no secondary beneficiaries are named. This, however, does not mean that you do not need to make any changes to your estate plan after divorce, because the federal laws that govern some employee benefits and pension plans will not automatically terminate a former spouse’s interests if he or she is named as the primary beneficiary on a plan or benefit program (even if you are divorced). You must make sure that the beneficiary designations are changed following the applicable procedure required by federal law. Your attorney can help you review your plan documents and make any needed changes to beneficiary designations.
If you have not already done so, make sure you execute a new will or revocable trust. Also make sure you have a guardian named for any minor children, and a heath care power of attorney for yourself-naming a close friend, relative, or some other trusted person in your life to act for you in the event you are not able to do so. If one parent has sole custody, the noncustodial parent will need a health care power of attorney to authorize medical care for your child in case of an emergency.
With proper planning, you will have the piece of mind that comes with making sure that all the necessary documents are in place to fully carry out your wishes in regard to these critical estate planning issues.
About the Author: Jennifer Cowan, Esq. is an estate planning attorney in San Rafael. She holds an LL.M. in Taxation, with an emphasis in estate and gift taxation. Her practice focuses on assisting individuals with wealth preservation and estate planning issues.