Effects of a Divorce on Estate Planning

By: Roman Aminov, Esq.

In addition to the emotional and financial ramifications of a divorce, there are important estate planning implications for clients contemplating divorce or separation. Along with selling, dividing, and re-titling assets comes the necessity to reevaluate your estate plan. “Why?” you might ask. Here are a few important reasons to sit down with an estate planning attorney during this critical time in your life:

Beneficiary Designations
When a New Yorker gets a divorce (including a judicial separation or annulment), all beneficiary dispositions they made to their former spouse, such as naming them as a beneficiary of life insurance or IRA, are automatically revoked by law under EPTL 5-1.4 unless, of course, the language in the governing instrument specifically states otherwise. Therefore, after a divorce decree has been issued, the bequest to the former spouse is revoked, and the next beneficiary listed would be entitled to the asset. However, if you fail to list successor beneficiaries, the asset would become a part of your “probate” estate and would require an estate administration or probate proceeding before it is passed to your loved ones. Why is that so bad? A couple of reasons:

First, probate and estate administration proceedings are time consuming and can get expensive. Naming beneficiaries makes the process faster and easier for your heirs. Second, if you have certain tax-deferred accounts such as IRAs and 401Ks, there are negative tax consequences if there are no beneficiaries listed on your accounts. As an important side point, if you have minor children, instead of listing them as beneficiaries, it is better to set up a minor’s trust, either in your will or a separate living trust, and name that minor’s trustee as the beneficiary. This will allow you to exert greater control over how and when your children receive their inheritance.

Wills and Advance Directives
A divorce also revokes your former spouse’s beneficiary rights under your last will or revocable trust agreement, in addition to any rights your ex-spouse had to act as an executor under your last will or as an agent under your health care proxy or power of attorney. It is important to revisit these essential estate planning documents to make sure that you have someone else appointed to manage your affairs if you become sick or pass away.

In Laws
While a divorce automatically revokes your ex-spouse’s designation as beneficiary or agent, it does not remove any of the ex-spouse’s family or friends as your agent or beneficiaries. Consequently, if your will appoints your ex-spouse’s sister to be the guardian of your children, or if you left any inheritance to any of your former spouse’s family or friends, a divorce does not revoke those selections. So unless you are in love with your ex-in-laws, a divorce is a good time to review your estate plan.

General Review
Tax laws change, families get bigger (and sometimes, unfortunately, smaller), and clients’ goals shift. Therefore, I advise clients to have their estate plans reviewed once every five years, or sooner, if there is they experience a significant change in financial or familial status. The process of getting divorced affects both aspects of a person’s life and provides a good opportunity to sit down with an estate planning attorney to make sure that your family and your assets are protected going forward.

It is important to remember that the automatic revocation provisions of EPTL 5-1.4 only take effect upon the completion of the divorce proceeding; if you pass away before you are legally divorced, your spouse would be entitled to whatever your current estate plan gives them. In addition, even though the law provides for automatic revocation, some financial institutions may choose to pay out to the beneficiary they have on file despite the law. For these reasons, it is important to speak with a wills and trusts attorney if you are contemplating a divorce.

For a free phone consultation with an estate planning attorney, contact us today at 347-766-2685.

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