Estate Planning Considerations During Divorce

You Should Update Your Estate Plan During a Divorce

If you are going through a divorce, it is important to update your estate plan. This includes your will, your living trust (if you have one), your power of attorney, and your health care directive. Some estate planning documents you can change immediately by yourself or with the help of an attorney. For others, you need to serve notice to your spouse and file notice or a request for orders for changes to take effect. There are some estate planning actions you cannot take while a divorce is pending.

 

 

Will

Your will is a legal document that specifies who will inherit your assets after you die. If you are divorced, you will likely need to update your will to remove your ex-spouse as a beneficiary or modify what your soon to be ex spouse will receive. You may also want to name new beneficiaries for your assets.

Living Trust

Your living trust (also known as an inter vivos trust) is often created to hold some or all of the assets of a trustor. A benefit of an inter vivos trust is that it helps avoid probate which is the legal process of distributing the owner’s assets after his or her death. In California probate cases are expensive and take a long time. Most Californians should have a living trust the cost of preparing the trust is far less than the expense of probate. In a living trust the trustor usually acts as trustee  during their lifetime or until a backup named in the trust is allowed to take over because the trustee has become unable to manage their financial affairs.

Power of attorney

A power of attorney is a legal document that gives someone else the authority to make decisions on your behalf if you become incapacitated. If you are divorcing, you will need to update your power of attorney to name someone else as your agent if you are in the middle of a divorce. An agent under a power of attorney is going to be making will financial decisions on your behalf. You must choose someone that you trust and who has experience handling financial matters.

Health care directive

A health care directive is a legal document that specifies your wishes for medical treatment if you become unable to make decisions for yourself and identifies a person who can make medical decisions for you if you are incapacitated. If you are divorcing, you may need to update your health care directive to name someone other than your spouse as your healthcare proxy. Obviously, every divorce is unique. Some people would not need to designate a new person.

What you can do

• You can change your will, power of attorney, and health care directive yourself. You can prepare a new will, or change the beneficiaries on your current  will or revoke it while the divorce is pending.
• You can also your attorney to prepare new documents for you. It is a good idea to consult with an attorney to make sure that your documents are valid and up-to-date. Until your divorce is finalized, you cannot disinherit your spouse from community property. If you’re still legally married when you die, and unless you have a will or living trust stating otherwise, your spouse has a legal right to your half of the community property. You can, however, create a will that leaves your half of the community property and all your separate property to whomever you want.

What you should avoid

• Be careful when revoking or altering a trust before the divorce is final. It is usually not allowed. Always consult an attorney before doing so. The issues are complex and what you can and cannot due is a function of the type of trust you have, and the language in the trust document.
• If you and your spouse created a living trust together, neither party may not change or remove the assets from the trust without giving notice and obtaining a court order or an agreement with your spouse.
• You should not try to hide assets from your ex-spouse.
• Funding a new trust, revocable or irrevocable, is generally not allowed during a divorce absent an agreement by the parties. You cannot create a non-probate transfer of assets such as IRAs, life insurance, and benefit plans, in a manner that directs assets away from your spouse.