How Does Divorce Impact Your Estate Plan?
Estate planning after a divorce is imperative. You want to ensure that your wishes are updated and followed in the event of your incapacity or passing. You may have established an estate plan with your spouse, but what happens if you are now divorced or going through the divorce process? This situation raises a lot of thorny questions, such as:
- What if you had created a trust together with your former spouse?
- What if your spouse is your designated agent on powers of attorney?
- What if your spouse is named as a beneficiary on your insurance policy or retirement accounts?
- What about property that you may own together, or that is owned by the trust you created together?
In Arizona, your former spouse is not considered your surviving spouse, so they are not eligible to receive any part of your estate. In addition, your former spouse, and your former spouse’s relatives would be unable to act as your personal representative (“Executor”) or trustee for your estate. The probate courts automatically remove a spouse upon receiving confirmation of your divorce or dissolution, so you don’t have to amend your will or leave any instructions. This may work for some, but it also raises quite a few “but, what if” questions and concerns for many, such as:
- What if disqualifying your former spouse or his or her relatives doesn’t accurately reflect your wishes?
- What if you want your former spouse’s relatives to serve as guardians for your minor children in the event something happened to you and your former spouse?
- What if you want your former spouse to manage assets left to your minor children?
In these three scenarios, you would need to draft new estate planning documents to adequately address and account for your wishes after the divorce is finalized. This may mean drafting a new Last Will and Testament to update your named guardians or creating new trusts to account for any assets and how they are distributed.
Keep in mind, the same rules don’t apply if you are legally separated (instead of divorced) because the marriage has not ended (or been dissolved). If you pass away while you are legally separated, your spouse would be entitled to half your community property, anything you may have left them in your will, and anything you may have left them under beneficiary designations. If you are legally separated and are concerned about what your spouse may inherit when you pass away, you should contact an experienced attorney and amend your will or file a motion to convert your legal separation to a divorce.
The best course of action is to always update your estate plan after major life events, so that your estate planning documents accurately reflect your current circumstances. This will help prevent any confusion or difficulty in carrying out your wishes and will hopefully prevent any escalating legal battles between family members.
Can I revoke a trust and create a new one with different beneficiaries?
Yes, you can revoke your trust and create a new trust. Under Arizona law, any nomination of your former spouse or their relatives to serve as your successor trustee and any gifts to your former spouse or their relatives are revoked upon divorce. This can create problems if your trust names your spouse’s relative as a successor trustee to manage trust funds for a minor child. Failing to revoke your prior trust in this scenario would likely require a costly court proceeding to fill the position of trustee, which may result in someone you do not want serving as your trustee. If, however, you wanted to keep your spouse or their relatives as beneficiaries or trustees, you would need to revise and re-execute your trust to verify your wishes after your divorce. For these reasons, it is recommended to revoke any joint trust after a divorce and create a new one to ensure that your wishes are carried out.
How can I revoke a durable power of attorney after my divorce?
You can execute a revocation of your power of attorney, however, drafting a new durable power of attorney after your divorce that replaces the one you had during your marriage is a better option. After your divorce is finalized, your former spouse is automatically removed as an agent named in your financial or health care power of attorney. However, your power of attorney will still be valid if you named an alternate agent, and they are willing to serve in that capacity. Although the state laws may automatically remove your former spouse as an agent, it is still advisable to update your estate planning documents to prevent any potential disagreements or legal disputes. Remember, your goal is to make sure you have clearly listed an agent to make decisions on your behalf if you are incapacitated. The easiest way to accomplish this goal is to update your estate plan documents after your divorce.
Can my life insurance proceeds be managed by a chosen trustee?
Life insurance policies are contractual agreements with third parties. Proceeds are typically paid out according to beneficiary designations. If you named your former spouse as a beneficiary of the policy prior to your divorce, that designation is revoked upon your divorce, under Arizona law. In order to prevent any incorrect payouts to your former spouse, it’s best to contact your life insurance company after your divorce and update your beneficiary designations. If your ex-spouse isn’t removed as a beneficiary, they may still inherit life insurance proceeds, even if you are divorced.
If you would like your life insurance proceeds to be managed by a trustee after your passing, you would need to create a trust and have the trust listed as the beneficiary. If you have minor children, it would be advisable to have a living trust which names the trust as the life insurance beneficiary. In this case, the life insurance proceeds would be payable to the successor trustee, and not directly to any minor children. Also, having the life insurance policy paid to your trust, allowing for distributions to any minor children, may be a good idea as it would prevent a lump sum payout to your former spouse (who may not use the life insurance funds as you intended).
If the parents do not have a living trust, it may be best to name the probate estate as beneficiary so that the life insurance proceeds can pour into a testamentary trust described in the parents’ wills. Although it may require probate, a testamentary trust created within a will can provide management of funds for beneficiaries similar to a living trust.
A proper estate plan may have many different planning tools to account for divorces or support obligations listed under a divorce decree. It’s very important to choose an attorney who is experienced with these complicated matters and can help guide you towards a plan that works for your particular life circumstances.
How can I include the designation of an appropriate guardian for the children on my estate plan?
For people living in Arizona, the only way a parent can legally name a guardian for their minor children is through a Last Will and Testament (See, A.R.S. §14-5202) . If you fail to do so, and one is later needed, family members may argue about who should be named the guardian. This can be very traumatic for young children and could potentially result in prolonged court battles.
You can help prevent this by ensuring your Last Will and Testament clearly names guardians and alternate guardians for your minor children. You will want to pick a primary guardian and also name one or more alternate guardians. You would want to name an alternate, just in case your first choice is unable to serve as the guardian. Remember to talk to your proposed guardian(s) about your decision; raising children is a huge responsibility, and you will want to make sure that they are willing to serve before naming them in your estate planning documents.
Estate planning can be very complicated and stressful, especially when it concerns divorce, remarriages, and blended families. Estate planning after your divorce is necessary to make sure that your wishes are up to date, that the right people are in charge of your estate, and that your designated choices are inheriting your property. The best way to protect your goals is to consult with an Arizona estate planning attorney for reliable advice and guidance.
The attorneys at Brown & Hobkirk, PLLC offer a wide variety of estate planning services to meet your specific needs and life circumstances. We look forward to meeting with you in one of our conveniently located offices in Scottsdale, Phoenix, Chandler, or Tucson.
Robert Hobkirk is a partner at the law office of Brown & Hobkirk, PLLC. He represents clients in legal matters involving trusts and estates, wills, probate law, and estate litigation, among other areas.