When you created an estate plan during your marriage, it was likely designed to protect assets for a shared future, as well as to protect your spouse should something happen to you, and vice versa. With a divorce, those plans and the documents detailing them are most likely outdated. For example, your will may still name your ex-spouse as the primary beneficiary, meaning they could inherit assets you desire for your children, a new partner, or a close friend. Your beneficiary designations on accounts like life insurance, 401(k)s, and bank accounts may need to be updated too. Read on for practical guidance.
New Life, New Plans
An outdated estate plan can have devastating and unintended consequences, especially regarding who makes decisions on your behalf. Beyond just inheriting your assets, your former spouse is likely designated as the executor of your will and the agent for your durable power of attorney and healthcare proxy. This means they could be in charge of settling your estate, managing your finances, and even making crucial medical decisions if you become incapacitated. To avoid these pitfalls, be proactive about updating your arrangements. At the Trust and Estates Law Group in North Carolina, Andrew J. Cobin, offers a post-divorce estate checklist, which begins with these action steps related to wills and trusts:
- Draft a new will so your wishes are crystal clear and current. A fresh document avoids confusion over what got revoked and what did not.
- Pick a new executor if your former spouse had that job. Then confirm alternates who can step in if your first pick cannot serve.
- Update gifts and beneficiaries so they match your goals today. Small tweaks here can prevent big headaches later.
- For revocable trusts, amend or restate to remove a former spouse as beneficiary or trustee. You can also change how and when distributions happen.
- For irrevocable trusts, meet with a trust attorney to explore legal options. Some changes can be made, but others are locked in by design.
- If you have children, consider setting up new trusts that hold assets for them with a trustee you trust, not your former spouse.
If you have minor children, it’s also essential to review guardianship plans, should something happen to both you and your ex-spouse. As a precaution, consider naming back up guardians as well, and make sure all named guardians are willing and able to step in, should the need arise. For your own well-being, it is key to put an up to date healthcare proxy in place, and to have a durable power of attorney (POA) for financial matters. Make sure you designate people you trust with your health and financial decisions should you experience a decline, and take the time to communicate with your designees so they are prepared to act on your behalf if necessary.
A post-divorce action step that many people overlook is reviewing all accounts that likely have named beneficiaries, such as bank accounts, life insurance, retirement plans, investment accounts, and digital assets. Cobin explains, “Beneficiary forms on accounts can override your will, which surprises many families,” and encourages reviewing and updating beneficiary designations and keeping copies of the confirmations from each account with your estate file.
Fiduciaries and Bonds for Your Estate Plan
When revisiting an estate plan post-divorce, pay close attention to the designation of a loved one, friend or professional to serve as your fiduciary. This person may be specifically referred to as an executor, trustee, or personal representative, depending on your circumstances and region. Regardless of the specifics of your estate plan, the fiduciaries you appoint have a legal responsibility to carry out your affairs, in accordance with the intentions set forth in your estate planning documents and the law. When representatives are designated, fiduciary bonds, alternatively referred to as estate bonds, can be required as a safeguard for the interests of your estate and beneficiaries. As a leading national provider of all types of fiduciary bonds, Colonial Surety Company makes it easy to obtain estate bonds and all other types of fiduciary bonds: simply get a quote online, fill out the information, enter a payment method, and download your digital estate bond.
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