If you were diligent and foresighted enough to create an estate plan while you were married, you should be congratulated for making it that much easier for the assets in your estate to pass to your heirs and friends. If you also established a trust or trusts and put in place advanced health directives, then you were even more conscientious about avoiding the costs and time involved in probate and in naming someone to make the important decisions about your health and finances should you become incapacitated. But what happens if you divorce and all those bequests and decisions involved your ex-spouse? There may also be consequences regarding estate taxes upon transfer of your assets.
A divorce is a dissolution or termination of the marriage relationship. You may have continuing obligations if there are minor children of the marriage or it was of a certain duration and your financial and other circumstances are unequal. These obligations are unaffected and remain regardless of your estate plan, but as for your Will and other testamentary instruments, now is the time to review it with your estate planning lawyer and to make the necessary changes and adjustments.
Many states, including Colorado, will invalidate any provisions in your will pertaining to your ex-spouse, treating your ex-spouse as if he or she predeceased you. This means that the alternate beneficiaries will inherit those items. If there weren’t alternate beneficiaries, the property passes via the laws of intestacy. But not all states do this and relying on these laws will create uncertainty among your heirs. The best thing to do is to create a new will that revokes the old one.
Consider a Premarital Agreement
If you get married a second time but have kids from a previous relationship, your estate planning lawyer may advise you to consider a premarital agreement since remarrying without one could enable the new spouse to inherit much of your estate to the detriment of the children of the previous marriage. A premarital agreement can safeguard those children’s inheritance and can also protect you in other ways regarding disposition of your property and your debt obligations upon divorce.
Agents or Powers of Attorney
If you designated your ex-spouse as your attorney-in-fact to make your health and financial decisions, you must update both documents. You should have two separate power-of-attorney documents, one for health decisions and one for financial affairs, so be sure to change both to name someone you trust and can rely on to carry out your intentions and to make decisions in your best interests.
Life Insurance and POD Accounts
Life insurance and payable-on-death accounts (POD) also need to be revised so that your ex-spouse is no longer the beneficiary, if that is your intent. Too many people neglect doing this and the ex-spouse ends up with a windfall, much to the ire of your heirs whom you probably intended as your beneficiaries. Your estate planning strategy could utilize a trust where the proceeds of your life insurance would go directly into the trust upon your death for the benefit of your named beneficiaries.
Establish a Revocable Trust
If you have a revocable living trust, update the document to ensure there are not any situations where your ex-spouse could become a trustee or a beneficiary. If it is irrevocable, however, you cannot change or alter it at all so that if your ex-spouse was the beneficiary, he or she will benefit when you pass away. If the trust was for the benefit of the children, then nothing needs to be done though you should review it anyway to ensure it is funded or if other assets should be transferred to it.
If you have minor children, be sure to name a guardian for your minor children in your will. Your children’s other parent will, of course, become their sole guardian if he or she survives you, but at least you will have designated a trusted individual to provide for the children’s care if their other parent is deceased too. If your ex-spouse is not responsible or you feel is abusive or otherwise an incompetent parent, you can attach a memorandum to your will for the court to at least consider if there is an allegation that the surviving parent is unfit. Really, however, the best time to resolve these issues is while you are still alive.
A divorce can change the estate tax implications. Colorado couples can give away as much $10.86 million before taxes apply. A single person, however, has only $5.43 million to give away, estate tax free. If this creates an issue for you, then you need to begin taking steps, such as gifting, in order to get your estate back under the estate tax threshold.
Other situations can arise when anyone divorces that can affect estate planning. If your marital status has recently changed, call Dan McKenzie, a Denver estate planning attorney, who has drafted, reviewed and revised so many of his clients’ old estate plans to reflect changed circumstances and to fulfill their intentions regarding their estates. Call him today for a free, initial assessment of your estate plans.