Estate Planning After Divorce or the Death of a Spouse
Episode 214 – Every year a substantial number of people go from married to single, either through divorce or death. A recent article looked at some of the estate planning steps you may need to take if it happens to you.
Transcript of Podcast Episode 214
Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, Estate Planning After Divorce or the Death of a Spouse.
One oft-repeated statistic is that half of all marriages end in divorce. That estimate may have been accurate a few decades ago, but more recent statistics indicate that the current number may be closer to 40 percent. This is good news, but it’s still true that an enormous number of adults go from married to single every year, either through divorce or death.
And when the change does occur, there are often things that the newly single miss, or never even think of when it comes to their estate planning. A recent article at ThinkAdvisor.com, written by Roger Wohlner, covered eight important estate planning steps for newly single clients. Here they are in order.
1. Discuss Planning Objectives
It’s almost certain that your objectives are going to change when you are newly divorced or widowed. The author suggests staying away from technical issues at first and focusing on your distribution desires, which have likely changed since when you were married.
2. Update Beneficiary Designations
Many people seem to forget that you can’t change the distribution of certain assets simply by changing your will. This often comes into play with retirement plans, IRAs, life insurance policies, and employer-provided group life insurance, where a change in beneficiary may be required. This is an especially significant concern when you get divorced as you may not want your ex to benefit from your assets. You need to make sure that your intended heirs are named as the beneficiaries.
3. Revisit Wills
Reviewing your will from time to time is a good idea, but it becomes critical when the potential beneficiaries change. This is true whether the change is due to the death of a spouse or divorce. Either way, you need to make sure that your assets are distributed in accordance with your (revised) wishes.
4. Revise Trusts
Many people–especially high net worth individuals–like to use trusts as estate planning tools. Structured properly, they can be effective in protecting family assets from creditors, divorce and mismanagement.
Very often, when family circumstances change, family trusts need to change. But there are limitations. Revocable trusts are usually easy to change. Not so with irrevocable trusts. If a change is required, you will need the help of an estate planning attorney.
5. Retitle Accounts and Other Assets
It is likely that some assets will need to be re-titled when you get divorced or your spouse dies. When a spouse dies, it is common that the surviving spouse will need to change the title on what was their primary residence, but this can apply to other accounts as well. With a divorce, title changes become part of the divorce settlement.
6. Name Durable Powers of Attorney
A durable power of attorney is a common estate planning technique. It allows you to specify someone else to act on your behalf in the event of disability or incapacity.
It is common for spouses to name each other as their agent in this capacity. When circumstances change, you may need to name someone else you trust to protect your finances as the agent on your power of attorney.
7. Name Medical Powers of Attorney
A medical power of attorney is commonly referred to as a health care proxy. This is where you appoint someone to make medical decisions on your behalf if you’re unable to do so. When your spouse dies or you get divorced, the document will likely need changing.
8. Decide Guardianship of Minor Children
This decision is complicated enough when both parents are alive. It’s even more complicated—and more critical—when one of the spouses dies. You need to find someone you trust to act as guardian in the event of your own death or incapacity. This may not be the case when there’s a divorce rather than a death. It all depends on the family situation.
People who are newly single almost always face a daunting series of emotional and financial challenges. While this list does not include every conceivable scenario; simply because every situation is different, it certainly provides a good place to start.
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