February 7, 2014. One area that is often overlooked in the divorce process is the need to update estate planning. Most people would agree that their ex-spouse is the last person they want to inherit their assets when they die—or to have that person make life and death decisions for them. But that is exactly what can happen – and often does – when these documents are not updated.
- Beneficiary Designations
Any assets that have beneficiary designations, such as life insurance policies, employer retirement plans, IRAs, annuities, health savings accounts, investment accounts and some bank accounts are not controlled by a will or trust. Instead, they are paid directly to the person listed as beneficiary (unless that person is deceased, is a minor, or is incapacitated when the insured dies). Most married people name their spouse as beneficiary, so these should be changed right away. If you fail to do this, the asset will transfer immediately to your former spouse.
- Children and Other Beneficiaries
If you name children as beneficiaries and they are minors when you die, a court guardianship/conservatorship must be established for them until they become age 18—at which time they will receive the entire inheritance. Until then, the other parent (your ex-spouse) could be named by the court to manage the funds. You have no guarantee your ex-spouse will follow your instructions, they may be tempted to use the money for his/her own needs, and the money would be exposed to his/her creditors.
Naming a trust as the beneficiary instead and selecting your own trustee (which may be your parent or sibling) is a much better choice. A trustee can be held liable if he/she misuses the trust assets. An ex-spouse can be prevented from having access to the money, and you can control when your children will inherit. Money that stays in the trust is protected from irresponsible spending, creditors, and even spouses. For all these reasons, a trust is an excellent choice as beneficiary instead of an individual, regardless of his/her age.
- Your Will and/or Living Trust
If you do not update your will or trust, your ex-spouse may inherit your assets. And if he/she remarries, the new spouse and his/her children could inherit your assets, leaving your children and family with nothing. If you have minor children, you need to name a guardian for them in your will. (Even if you have a living trust, a simple will is required to name a guardian and to direct any forgotten assets into your trust.) Upon the death of one parent, usually the surviving parent will become the sole guardian. But if your ex-spouse has also died, had his/her parental rights terminated, or becomes an unfit parent, the court would have to appoint a guardian and can be helped in making that decision by knowing your choice.
- Powers of Attorney
Most married couples give each other the power to make health care decisions, including those regarding life and death. Financial powers are also usually given to each other so that one can manage the other’s financial affairs without interruption. These are often quite broad, including the ability to buy and sell real estate, open and close financial accounts, change beneficiary designations, collect government benefits, etc. Giving your ex-spouse this kind of power could be devastating. Instead of your ex-spouse, you can name a parent, sibling, close friend or adult child to have these powers and act for you when you cannot.
- You Need Professional Guidance and Assistance
You probably need an experienced attorney more now to help you with updating your estate plan than you did when you were married. Don’t procrastinate on this. Make sure you protect yourself, your children and others who depend on you.
For more information on family law and/or estate planning services from the Goosmann Law Firm, contact us by emailing email@example.com or call 712.226.4000.