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The divorce process can seem like you have a on long laundry list of things to-do, most of them feeling endless and no fun! One of the most daunting can be the process of reassessing estate plans, wills, and trusts.
This 20 minute conversation between divorce prep coach Alex Beattie (A.K.A. The Divorce Planner) and estate planning attorney Mindy H. Stern, sheds light on the crucial steps individuals need to take to secure their financial future during divorce.
Here's what you'll learn:
Understanding the Impact of Divorce on Estate Planning
Divorce fundamentally changes your personal and financial life, necessitating a thorough review of your estate plans, wills, and trusts. As Mindy H. Stern points out, divorce is like a death in many ways—it's a significant end that requires a fresh look at one's entire universe of estate plans. Whether it’s deciding who will take care of your children or how your assets are to be distributed, these documents need a critical evaluation.
When to Start the Process
It is crucial to start the process of updating your documents as soon as you know you are heading towards divorce. Mindy suggests coordinating with an estate attorney at the same time as consulting a family law attorney. Building a team of professionals early helps in navigating both the legal aspects of the divorce and the reconfiguration of estate plans.
Key Considerations for Revising Estate Documents
1. Wills and Trust Adjustments:
Any existing wills or trusts likely list your spouse as a significant benefactor. During a divorce, these documents must be reconsidered to align with the new family dynamics and personal wishes.
2. Guardianship for Minor Children:
Divorce often intensifies concerns about the future care of minor children. The original estate plan might have named the spouse as the guardian, which might not be your wish post-divorce. Deciding who will take care of the children in your absence is a decision that requires careful consideration and must be updated in all relevant documents.
3. Beneficiary Designations:
It’s essential to review and amend beneficiary designations on insurance policies, retirement accounts, and other financial instruments. As Stern emphasizes, failing to update these can unintentionally leave significant assets to an ex-spouse.
4. Powers of Attorney and Healthcare Proxies:
If your spouse was previously designated to handle your affairs in the event of incapacitation, updating these documents is crucial. You'll need to appoint someone you trust to manage your financial and health-related decisions if you are unable to do so.
Top 4 Mistakes People Make With Estate Plans, Wills, and Trusts During Divorce:
By avoiding these common mistakes and taking proactive steps to secure your estate, you can protect your interests and those of your loved ones.
1. Waiting Too Long to Update Estate Documents
Mistake: Many individuals postpone updating their estate plans until after their divorce is finalized. This delay can result in unintended beneficiaries or executors, often leaving the ex-spouse in a position of power or benefit that no longer reflects your wishes.
Solution: Initiate changes as soon as you decide to divorce. Consult with an estate planning attorney to understand your options and take necessary actions. It's important, however, to recognize the laws in your state as some impose restrictions on changes that can be made during divorce proceedings. Acting immediately helps ensure your estate plan matches your current intentions and protects your interests.
2. Overlooking Beneficiary Designations
Mistake: Failing to update beneficiary designations for retirement accounts, life insurance policies, and other financial instruments is a common oversight. These designations often override your will, meaning that your ex-spouse could remain the beneficiary on these accounts if not updated.
Solution: Review and amend your beneficiary designations as part of your divorce proceedings. It’s crucial to do this with every account, as changes to your will or trust do not automatically update your designated beneficiaries.
3. Ignoring Tax Implications
Mistake: In the midst of a divorce, the tax implications of estate planning changes can be overlooked. Without careful planning, there can be unintended tax consequences for both you and your heirs.
Solution: Work with an estate planning attorney and a tax advisor to understand the tax ramifications of your updated estate plan. This collaborative approach ensures that decisions made during your divorce are tax-efficient and in line with your goals for the future.
4. Neglecting to Consider New Guardians for Minor Children
Mistake: Updating your will and trust during divorce often includes revisiting who will act as guardians for your minor children should something happen to you. Neglecting to make appropriate changes can result in your ex-spouse automatically assuming full custody, which might not always align with your wishes or the best interest of the children.
Solution: Take time to carefully consider and appoint a guardian who aligns with your values and wishes for your children’s upbringing. Document your decision in your will, and discuss your wishes with the chosen guardian to ensure they are willing and able to take on this responsibility if needed.
Take Action: 4 Things To Do ASAP
1. Gathering Information
Before making any changes, gather all current estate planning documents and review them thoroughly. This task can feel daunting, but it’s necessary for understanding what needs to be revised.
Not sure where to begin? Check out The Divorce Planner's What To Gather worksheet and Asset logs & spreadsheets. They'll walk you through exactly what you'll need to have in hand when moving forward.
2. Consulting Professionals
Work closely with a qualified estate planning attorney who understands the nuances of state laws and can help navigate both the legal and personal aspects of these changes. Additionally, consulting a financial advisor can provide insights into the long-term impacts of these decisions.
3. Making Decisions
Decision-making can be the hardest part, especially when it involves reallocating assets or changing guardianship. Estate planning attorney Mindy Stern suggests a practical approach, recommending that decisions be made with a timeframe of about five years in mind, acknowledging that circumstances change and adjustments can be made later.
4. Implementing ChangesÂ
After decisions are made regarding the new estate plan, the necessary legal documents must be drafted, reviewed, and legally executed. This might involve signing new wills and trusts, updating powers of attorney, and changing beneficiary designations on financial accounts and policies.
Divorce significantly affects your estate planning, necessitating updates to wills, trusts, and other important documents. By engaging with skilled professionals and taking a systematic approach to updates, you can ensure that your estate is managed according to your current wishes, providing peace of mind during a turbulent time.
One Last Thought...
Don't let the complexity of the process deter you—use it as an opportunity to take charge of your future and protect your interests and those of your loved ones. As you embark on this important task, remember to approach it as a manageable series of steps, ensuring that all decisions align with your current life circumstances and future goals. With careful planning and expert guidance, you can navigate this challenging process effectively.
Want more free divorce prep and financial planning information?
Check out all the 20-minute mini masterclasses on divorce from divorce professionals available on The Divorce Planner's blog! You'll get meaningful insights from noted divorce attorneys, mediators, financial planners, CDRE's, forensic accountants, therapists and more!
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