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POST-DIVORCE ESTATE PLANNING: 6 COMMON QUESTIONS

Divorces are often draining – financially and emotionally.  As a result, many do not want to incur more costs or even think about different financial arrangements.  However, anytime there is a significant change in your family (death, divorce, disability, births, etc.), your estate plan should be at least reviewed.

Although our list could be much longer, here are 6 matters to consider:

Do I need a new will?

The most typical wills of a married couple is all to each other.  However, under Texas law, the former spouse is treated as if he or she predeceased the deceased spouse if the will is not changed.  Nonetheless, there are several reasons why you may want to change your will, including:

  1. Different beneficiaries.  Perhaps your children were the contingent beneficiaries named in the will and you become estranged from one or more of them – whether due to the divorce or for other reasons such as you might have a new significant other.  Sometimes laws have changed.  For example, the Secure Act changed the law this year on how soon a beneficiary of your retirement account would be income taxed after you die and you may prefer more of the retirement account be distributed to a special needs trust for a disabled child so that the retirement account distributions could be stretched over the life expectancy of the child (see the August Success Story of the Month by clicking here) since a disabled beneficiary could stretch receipt of retirement income unlike most other beneficiaries (other than a beneficiary who is chronically ill, less than 10 years difference in age than you or if your beneficiary is a minor child of yours)) .
  2. Different executor, trustee or guardian.  Although your former spouse is no longer considered a beneficiary, they still might be named as the executor, trustee, guardian, etc., and you may want to consider someone else or at least the order.
  3. State laws differ.  If you move to another state, your former spouse may not be treated as if they predeceased you (unlike Texas).  Most do not want their former spouse as their beneficiary.
  4. Inadvertent disinheritance of former spouse.  Although unusual, sometimes it is desired that the former spouse be a beneficiary.  As stated above, if a new will is not signed, the former spouse right to be a beneficiary would be nullified under Texas law.

Do I need to revise my living trust?

It depends on the language of your trust.  Since Texas is a community property state, most living trusts involving a married couple are joint.  However, unless the trust provides what happens in the event of divorce, Texas law does not automatically nullify a bequest to your spouse like it does under a will.

Do I need to change my life insurance beneficiary?

Unless there is something to the contrary in your divorce decree, Texas law considers your former spouse to have predeceased you if named as a beneficiary.  However, you should always review beneficiary designations (which supersede your will) – whether it be of a life insurance policy, annuity, IRA, pension, etc. for tax reasons, contingent beneficiaries, etc.

Are ERISA beneficiary designations treated differently?

Employee benefit plans (such as 401Ks) are based on federal (not state) laws.  Under a U.S. Supreme Court decision, the governing documents of the plan regarding the distribution of benefits must be followed by the plan administrator.  So, in the case before the Court, even though the former spouse released any rights to the plan under the divorce decree, she was entitled to her former husband’s benefits since he never removed her as a beneficiary under the plan.

Does my spouse automatically lose authority to act as my agent of my Power of Attorney upon divorce?

Yes (under Texas law) unless the power of attorney states otherwise.  The rules differ from state to state.  The document will determine whether notice of revocation is needed although it may be a good idea to give notice of revocation to the agent.  If you own real estate, the revocation should be recorded with the county clerk where the property is located, particularly if the power of attorney was previously recorded.  You might also give notice of the revocation to each financial institution where you keep assets.

Medical powers of attorney may be revoked by informing your agent or health care provider in writing or orally or by signing a new medical power of attorney.

What if I die before the terms of the Divorce Decree are fulfilled?

The injured party, former spouse or their heirs or beneficiaries, will have a right to sue and enforce the decree against the estate of the deceased spouse resulting in substantial additional attorney fees.

There are many more post-divorce estate planning considerations which are beyond the scope of this article. 

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.

We would like to invite you to join our Alzheimer’s walk team, Michael’s Marchers, on October 3, 2020, to raise funds for the benefit of the Alzheimer’s Association to help find a cure for this terrible disease. Unlike prior years of a mass gathering, the Walk will be virtual where you can virtually walk with a small group or individually from any location. This will be a unique experience! Please join our Walk team (whether you contribute or not) by clicking here

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