Although divorce is never something we like to think about, it has become an increasing prevalent fact of life for many Massachusetts couples. Accordingly, it is important to consider that possibility when doing your estate planning.
Divorce Affects Estate Planning Strategies
Moving assets between spouses can be a good strategy for estate tax planning. For example, spouses often will equalize assets to fund a family trust to take advantage of both spouse’s estate tax exemption, regardless of who passes away first. While this is appropriate for many families, it is important to consider how this could affect how assets would be divided upon a divorce.
Impact of Divorce on the Estate Plan
In Massachusetts, a divorce automatically removes the former spouse as a beneficiary of a will or trust. Typically this is desirable; however, there are times when a client will want to keep his or her ex-spouse in their estate plan even after a divorce. Accomplishing this is not as simple as leaving things alone and a new will or trust should be executed reaffirming the bequests to the ex-spouse, once the divorce is finalized.
Also, after the divorce, a new power of attorney and health care proxy should be executed, naming new fiduciaries. While some proxies revoke these designations upon divorce, others do not. You should also do a new HIPAA form, removing the ex-spouse as a person having access to protected health information.
One item which is often overlooked is beneficiary designations, which is a designation of who will inherit certain specific items such as IRA’s, 401k’s and investment portfolios. Divorcing couples should do new beneficiary designations for all items with such designations. These items typically pass directly to the designated beneficiary outside of probate, so failure to change who will receive them is often not challengeable in probate court.
Going through a divorce can be devastating both emotionally and financially. If you or someone you know is getting divorce, or has been divorced, it is crucial that they take their estate plan into account before moving on with their lives.