Guest post written by Leslie Marenco, a legal professional with a focus in the areas of Asset Protection, Estate Planning, and Corporate Transactions. Leslie is dedicated to helping families and businesses make the best legal decisions throughout their life.
Divorce is a very stressful time and there are many things that you need to think about. Believe it or not, one of the most crucial things to address as soon as you decide to separate is your estate plan as it is critical to understand the impact of your divorce on what would happen in the event of your incapacity or death. Below, we have outlined important information for you to consider during and after your divorce.
Unless your estate planning documents say otherwise, filing for divorce will not change your estate plan or the legal default rules about what happens to your assets if you pass away. If you want control over what happens to your assets upon your death or incapacity, you need to execute a will or a trust to direct the distribution of your assets and appoint a person you trust to make sure your wishes are followed. You need to take action as soon as you decide to file to protect yourself.
Medical and Financial Decisions During Incapacity
Until your divorce is final, your spouse is the person with priority to make both financial and health care decisions, should you become incapacitated. Many people going through a divorce are uncomfortable with their soon-to-be ex-spouse deciding things such as tube-feeding and life support, in addition to controlling their finances, should something happen to them before the divorce is final. Most would prefer naming another person to make those crucial decisions on their behalf.
An Advanced Directive naming a trusted friend or family member would give the person of your choice the power to make health care decisions if you are unable to communicate your wishes. A Power of Attorney would similarly authorize a person you trust to manage your finances if you are unable to do so. Properly executing these documents, as soon as possible in the divorce process, can give you much-needed peace of mind. Also, these documents can continue to be effective after the divorce is final, meaning these essential tools are set-up for the future.
Assigning a Beneficiary
During your marriage, chances are your spouse was the sole (or major) beneficiary of your estate so it is important that you choose a new beneficiary on all of your planning documents and for all of your bank or brokerage accounts.
When it comes to your retirement/qualified plans – your IRAs, 401k, 403b, etc. – do not assume that as soon as you divorce your spouse will be disinherited. The federal law called ERISA trumps state laws that automatically removes an ex-spouse as the beneficiary of your retirement plans. Therefore, it is important that you choose a new beneficiary for these assets. But be careful! Remember you cannot directly name your children while they are minors as they don’t have the legal capacity to manage any assets yet.
Establishing a Will or a Trust
Unless you want your soon to be ex to inherit all your money you will need to create a will or a trust saying otherwise. If you have those important documents in place already, then most likely you will need to change them. Technically, Florida law does not allow one spouse to completely disinherit the other, even after the divorce is filed. If a party dies in the middle of a divorce and an estate plan makes no provisions for the deceased person’s spouse, the spouse is entitled to his or her “elective share.” The elective share is a percentage of the total combined assets of the deceased and the surviving spouse.
The rules are complex, but generally it is better to have a comprehensive estate plan that purposefully attempts to disinherit your soon-to-be ex-spouse as they might not, for many reasons, make this election. It is also important to update your estate plan to ensure that a designated person that you entrust will have control over funds after death, and not your soon-to-be ex.
Usually, the way we accomplish this would be using trusts and these are the three most common trusts that you can explore when planning your estate:
1. The Revocable Living Trust helps you avoid probate by allowing your Trustee to distribute your assets according to the instructions that you have outlined.
2. The Children’s Trust allows you to designate funds that your child will use later in his life to pay for his education, home, etc.
3. The Irrevocable Life Insurance Trust, otherwise known as “ILIT”, allows you to distribute the death-benefit estate tax-free when and how you want, even long after you’re gone.
Divorce is never easy. It is typically a very long and arduous process as both of you work out all the details regarding your assets and you children. It is important that you meet with a qualified Estate Planning attorney to ensure that your wishes are carried out as you desire – during and after your divorce. Your family law and estate planning attorneys will work collaboratively and economically to share information that ensures you and your assets are protected during the divorce proceedings.
Leslie Marenco Esq. is a trusted advisor for individuals, domestic and foreign families, and businesses. She strives to provide creative solutions to allow individuals and families to build and transfer their wealth to younger generations at little to no tax cost. You can read more about Leslie and her services here, or at trustcounsel.com.
Find Leslie on LinkedIn here.