Greenville Estate Attorney: “Life Event 1: Does a Divorce Effect Your Estate Plan?”
June 18, 2009
Absolutely. If you are divorced, you must revisit your estate plan. A change in marital status can lead a formerly sound estate plan to cause numerous unintended consequences. If your divorce attorney does not specialize in estate planning, ask him or her for a referral to an estate planning attorney. The time and money spent now could save even more time and money down the road.
There are many estate planning traps for the unwary when a marriage has ended in divorce. Unless your Will states otherwise, a divorce will revoke any beneficial interest that you have designated to your former spouse in a previously executed Will. Remarriage to the former spouse revives said beneficial interest. If you intend for the provisions in favor of your former spouse to remain effective and the first Will is silent on this issue, it will be necessary to execute a new Will.
Another area of concern after a divorce has to be your jointly held accounts, and/or your transfer or payable on death assets. These assets can include bank accounts, investment accounts, and life insurance. The death beneficiary of these assets is designated by the account owner, typically when the account is first opened. A subsequent Will that lists a new beneficiary is ineffective, and the distribution of these assets will be as previously designated. Typically, a spouse is designated as a death beneficiary. After a divorce, due to inadvertence, the former spouse may remain as the death beneficiary. The assets are then paid to the former spouse, even if a new Will directs otherwise. This is a result that may not be intended and frequently causes fruitless litigation.
It is imperative that a complete review of payable on death assets is undertaken after a divorce, and any desired changes made. Such a review must also include a review of the divorce and property settlement documents, as frequently a divorced spouse may be required to keep payable on death designations and/or life insurance in favor of the former spouse either as an equitable distribution settlement or as security for child support or alimony.
Only a divorce order, annulment order, or other order purporting to terminate all marital property rights or confirming equitable distribution between spouses has a revocatory effect on beneficial interests granted to the former spouse. Decrees for separate support and maintenance do not have this revocatory effect, as such decrees do not affect the marital status.
Another potentially disastrous trap arises in the context of estate tax planning. The marital deduction can take on a prominent role in the estate tax plan. Taking the marital deduction requires that there be a surviving spouse. Obviously, after a divorce the spousal relationship ceases. If the marital deduction is unavailable, there are other deductions that should be considered. Without having the opportunity to reorganize the estate tax plan, you could walk into a double estate disaster in that the former spouse unintentionally receives estate assets, and the marital deduction will be unavailable for those transfers.
The preceding issues are but a few of the problems that can arise from a divorce. A divorce is one of those major life events that should send you to an estate planning attorney. While it may be understandable that a new divorcee will not wish to deal with another attorney right away, an evaluation of the estate plan should be put onto the six month to one year to-do list. A little time spent now can assure that the persons that you intend will receive your property and be adequately provided for after your lifetime.
Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.