Divorce has a major impact on your estate plan. We’ve covered this topic in 2009 and 2010, and now we’ll cover some different aspects of it.
Consider the following items:
Many people going through a divorce don’t address their estate planning until the divorce is over. After all, then they will know what their obligations or rights are, they reason. Bad reasoning. State law doesn’t do anything until the divorce is final. So, if the stress of the divorce kills you, your ex will get everything that your will provides for. So, you really should revise your documents when the certainty of divorce first becomes apparent.
If someone just got divorced and has "had it" with legal bills, is it important to update their estate planning documents?
Yes. Some state laws may automatically remove your ex-spouse as a beneficiary or fiduciary (executor or trustee) of your estate planning documents, but these laws are rarely sufficient. For example, New York law (EPTL 5-1.4) terminates “revocable disposition” to your ex-spouse’s. So, if your ex was named as a beneficiary in your will, that is a revocable disposition, and divorce in New York ends his/her rights.
Lots of people set up irrevocable trusts – trusts that cannot be changed. This is done to achieve better tax and creditor protection. But, if you divorce and your ex is named, what can you do? State law is unlikely to help, and the trust is irrevocable! Don’t give up without a careful investigation. If you set up an irrevocable trust, like a typical insurance trust, divorce won’t remove him/her. However, some irrevocable trusts might have a trust protector that can change the status of a beneficiary. If you have that flexibility, you should have him/her removed since the state law won’t help.
There may be another way to skin the trust cat. Say, for example, you have an irrevocable life insurance trust and cannot remove your ex. Well, if the trust only owns term insurance and that coverage is not mandated under your divorce agreement, then set up a new trust to buy new insurance and name the beneficiaries you want. Let the old trust die off. If you don’t make new gifts and the term policy lapses, that may be as effective as having changed the old trust.
What about removing your ex-spouse as an executor or trustee?
Yes. Some state laws may automatically remove your ex-spouse as a fiduciary. This includes an executor or trustee under your will and an agent under your power of attorney. But if your brother-in-law was named he won’t be removed, just your ex. So, it's really important to revise all of your documents immediately and not take a chance.
Would you want your ex-mother-in-law to be the agent under your medical power of attorney after you left her son/daughter, the "prince/princess?"
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