In a recent study conducted by caring.com it was found that while 56% of those surveyed believed that estate planning was important, only 33% of Americans had actually formally completed their estate plan. Each state has laws that determine what happens to somebody’s belongings and the guardianship of their minor children in the event of death. When couples are married the estate and care of the children typically is assigned to the surviving parent. When couples divorce they often no longer wish for the other spouse to receive their assets or to control their estate that will likely be passed to their children. Every divorcing couple should consider the impact of their divorce on their estate plan, review it with a professional if they have previously completed a plan, and consider making an estate plan for the first time if they have not previously addressed it.
This past week I sat down with Mark Ignacio, an experienced and highly qualified estate planning attorney to speak with him about the estate planning issues that arise surrounding divorce. This article is intended to provide an introduction to some of those issues and to highlight the importance of considering your options and working with an estate planning professional to memorialize your plan.
In a nutshell, estate planning involves two primary things: 1) identifying who and how you want decision making to be done in the event you become incapacitated and 2) to spell out what will happen to all you have accumulated in the event of your death. If you do not make a plan the state will make one for you. The costs for the state doing so are expensive and the process long and cumbersome. The person the state assigns to make your health care and financial decisions may not be the person you would want to entrust with such important decisions. The people the state determines will be your heirs may not be the people you intend to receive your hard earned assets. If you have minor children who will receive your estate, the person the Court designates to oversee the management of the estate for the children before they become adults may very well not be the person you trust to do so. A comprehensive estate plan will address all these important issues so that the person of your choosing is promptly designated to make your important decisions when that time comes, and to promptly and economically transfer your belongings to the people of your choosing.
Divorce is an important time to review your estate planning for a few different reasons.
The first is that divorce impacts the legal framework of what will happen in the event of death. The second and more obvious is that what you want to happen when you are married may very well have changed upon divorce. The third is that if you and your spouse had done your initial estate planning jointly, then because you will be dividing your belongings, they will have to come out of the previously established trust and placed into the new estate plan for each spouse.
Let’s go through these one by one. When you are married California has determined that in the event of your death without an estate plan your property will go to your spouse. Upon the finalization of a divorce the law changes, and the children become your heirs. If you don’t have children then the State designates relatives further down the family tree. In speaking with Mark Ignacio he pointed out that while you may want your estate to go to your children in the event of your death, if they are minors then instead of it being transferred directly to them, a guardian is appointed to manage the estate. That guardian will typically be the other surviving parent. Couples who have decided to divorce one another may not want this result. On the one hand it will be the other spouse who is responsible for meeting the needs of the children all by themselves, so providing them additional resources to do so may be important and valuable. On the other hand, you may not agree that the other spouse is the best person to carry out your wishes.
Things change when you divorce. Most couples who divorce no longer plan to have their former spouse be the designated person to make important decisions for them. Divorce does not cancel out health care and power of attorney directives so it is important to consider designating a new trusted person when you have parted ways with your spouse. When couples buy a house together during marriage, title is typically taken in a joint tenancy, which provides for the house transferring entirely to the surviving spouse upon death of the first spouse. Until the house is disposed of through the divorce, this may not be the result you want. Some couples choose to remain joint owners of real estate after divorce until a more opportune time comes to sell or otherwise dispose of the property. It is important to review how title is held so you are clear there is agreement to have the house pass to the surviving spouse, or that title is changed to a tenancy in common which would allow the estate of the deceased spouse to receive that spouse’s half of the equity. Estate planning is essential in this situation because a long and expensive probate will be required to transfer title if the proper planning has not been done.
Couples Estate Planning
Couples who have completed estate planning together cannot get around having to do a brand new estate plan upon divorce. Mr. Ignacio indicates that while there might be some savings in taking some of the information from the previously existing estate plan, a living trust or will for a married couple is much different than that for a single person, so a whole new set of documents will need to be drawn up. As mentioned above, because assets at divorce are divided between the spouses, the assets previously held in the joint trust will need to come out of the trust and each spouse will take whatever they receive and use it to fund their new trust. As if you did not have enough to deal with as you proceed with your divorce, it is extremely important to tackle this one additional issue of updating your estate plan given the shift in ownership that has taken place.
Mr. Ignacio lends a final word on the importance of estate planning. Many of us think that our estates are modest and therefore no formal estate planning is needed. If you own real estate, estate planning is essential. If you have minor children an estate plan is critical. If you don’t own real estate and you don’t have minor children, but you have accumulated over $184,500 in assets then an estate plan is needed to avoid probate. If none of these apply, but you just want to make your wishes clear upon your death and make the work needed to handle your estate manageable for your heirs, investing some time, money and energy into estate planning is well worth it.
In our work with divorcing couples we strive to make sure each spouse is okay as they move forward with their life after divorce. Sound estate planning following the divorce can help each spouse find peace of mind and assure that their wishes are known and implemented in the event of their death. Understanding these issues and planning accordingly is an essential part of the divorce process.