How a Divorce Can Affect Your Estate Plan

 Posted on June 21,2017 in Estate Planning

Following a divorce, the terms and provisions of your estate plan may become obsolete, especially if your ex-spouse factored prominently in your plan. While there are laws that help prevent estate planning issues after a divorce, it is still a good idea to take another look at your will, trusts, and any other estate planning tools to determine if modifications are needed.

Revocable Trusts

A revocable or living trust is the most common instrument that requires review during or after a divorce. In a revocable trust, the holder of property (called a settlor) confers that property to a trustee to hold for a beneficiary while still retaining the right to take the property back. It is very common for either the trustee or the beneficiary to be a spouse.

If your former spouse is a beneficiary of a revocable living trust, there is not much of a problem. A beneficiary does not actually own the assets in the trust and will not, in most cases, until the death of the settlor. Beneficiaries can be changed fairly easily following your divorce. If a former spouse is a trustee, however, more serious issues may arise. The settlor has the right to retain the property, but the trustee retains control over the property itself. This can create complications in property division during divorce in addition to concerns regarding the future of your estate.

Wills and Beneficiary Designations

Most people—even those who have a living trust—have some type of will, which is commonly drafted to leave a large portion of the estate to their spouse. In many states, such provisions stand even after a divorce, but in Illinois, a divorce automatically revokes any testamentary gifts made to the former spouse. The rest of the will is usually left intact, despite the absence of a severability provision. It is advisable, however, to draft a new will, especially if the remaining provisions are insufficient to address your wishes.

In addition to a will or trust, most people have other instruments on which they must designate beneficiaries, such as life insurance policies and IRAs. It is extremely common for couples to list one another, but these instruments are not controlled by Illinois law. Thus, after a divorce, if you want to change the beneficiary, you may do so, but you must make the change on each policy, account, or fund separately.

Be advised that some accounts like 401(k)s and pensions come under the jurisdiction of the Employee Retirement Income Security Act (ERISA), which mandates that no matter what, all assets in these accounts must be turned over to the named beneficiary, with no legal challenge possible. If you do not wish your spouse to receive the proceeds of such assets, you must change the beneficiary during your lifetime.

Contact an Estate Planning Attorney

Estate planning can be a heavy topic, especially after dealing with divorce. However, it is a necessary topic, and the experience of a qualified legal professional can help ease the burden. Contact a skilled estate planning lawyer in Lombard to get the guidance you need. Call 630-426-0196 for a confidential consultation at A. Traub & Associates today.

Sources:

http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2104&ChapterID=60

https://www.dol.gov/general/topic/health-plans/erisa