Christine Fletcher is back to provide more of her knowledgeable estate planning advice. Her help is always welcome but especially this week as I’m on vacation :)
Last week Nancy posted about the importance of updating your estate plan after you divorce. Unfortunately, I have seen the effects of what not doing this can have on a family. Many clients are so drained, both emotionally and financially, from a divorce that they find it difficult to deal with anything else. Or perhaps, having an ex-spouse named in a will as an executor or as a beneficiary is the last connection to that person that you are having trouble severing. But it is important to understand the effects that not updating your estate plan will have.
If you have a will or trust that predates your divorce and names your now ex-spouse as a fiduciary or a beneficiary, some states will treat that spouse as if they predeceased you or refused to accept the asset. The same may apply to ex-spouses named as a beneficiary of a life insurance policy or a retirement plan. However, not all states take this approach. You need to check with your attorney as to your state’s laws. And even if your state takes this approach, having to rely on it may end up costing your loved ones added time and money.
Massachusetts recently updated its probate laws on this topic, and we are still dealing with the implementation of that law. When laws change it often takes years for insurance companies, financial institutions and lawyers to agree on the effects of that law. All that time costs your family money and added stress, and may not result in the outcome you intended. Your ex-spouse may fight for the asset, or even if the ex-spouse agrees to refuse to accept the asset, doing so may have unintended estate or income tax implications.
Ideally, you need to sit down with your attorney and your financial advisor to discuss your financial situation, insurance needs, estate plan and the obligations you have to your former spouse and children under your divorce agreement. It is important not to plan in a vacuum. All your advisors should know what is going on to ensure proper planning. If you cannot meet physically, connect by email. Get your team in place and update your will, trust and beneficiary designations. You will have peace of mind knowing that if something unexpected happens to you, there is a proper plan in place to provide for your loved ones.