Protecting Your Assets: Will and Divorce Planning
Protecting assets should be one of an individual’s top priorities when going through a divorce. While much of the asset division during a divorce often takes place in divorce court with divorce attorneys, it is also important to consider the estate planning implications of a divorce. Wills, trusts, and all other estate planning documents should be reviewed and updated for all major life changes, including divorce. If you are going through a divorce and want to make sure your assets are protected, the experienced San Francisco estate planning lawyers of Von Rock Law are here to help. Contact us today at (866) 720-0195 to learn more about will and divorce implications and other estate planning matters relevant to divorce.
Your Last Will and Testament should be reviewed and updated to reflect any major changes in your life, such as marriage, the birth of a child, moving to a new state, and divorce. If a will is not updated soon after divorce, you could be at risk of losing your assets to your former spouse. California law does have legal protections that automatically revoke property or gifts for a former spouse in a will after the couple divorces, as established in California Probate Code § 6122. In addition, state divorce laws prohibit an ex-spouse from acting as the executor of the estate, even if the will has not been updated to remove this designation.
These legal protections only go into effect after a divorce is finalized, so an ex-spouse could receive assets if they have been named as a beneficiary in the will and the owner of these assets dies during the divorce process. Because even the very near future is always unknown, a will should be updated before a divorce is finalized, and failing to do so could put assets at risk People going through a divorce should consider updating the individuals named as their executor and beneficiaries as soon as possible after separating to ensure that assets are protected before the divorce is finalized.
The two main types of trusts––revocable and irrevocable––are each handled much differently following a divorce. People who formed trusts during their marriages should be aware of what to expect during the divorce process.
Of the two main types of trust, revocable trusts are generally much easier to update during a divorce. The terms of revocable trusts may be changed, and the trust may be dissolved at any time. During divorce court proceedings, judges often order the trust to be dissolved and the property within the trust is typically returned to the marital estate. According to the Judicial Branch of California, these assets may then either be considered community property and subject to division during divorce proceedings, or separate property that remains with the original owner. Trusts formed before marriage are legally considered separate property and the assets held within them are not typically susceptible to redistribution during a divorce.
Irrevocable trusts generally raise a more complicated set of concerns during a divorce. As the name suggests, the terms of an irrevocable trust cannot be changed once the trust has been established. While the trust owner maintains control of assets held within a revocable trust, an irrevocable trust is owned by a third-party trustee, who is responsible for distributing the assets held within the trust according to the terms set forth by the owner of the trust.
Since neither spouse owns the assets held within an irrevocable trust, these assets are not subject to property division and remain held within the trust. They will be distributed to beneficiaries listed when a specific condition occurs––typically when the person who formed the trust passes away. The beneficiaries of an irrevocable trust cannot be changed, even after divorce. Because of the permanent nature of irrevocable trusts, they are typically best used for minimizing estate taxes, rather than protecting assets in the event of a future divorce.
All parts of an estate plan should be revised and updated as needed when going through a divorce. The following is an overview of some of the key components to look over and how to update them during or after a divorce. If you have more in-depth questions about a trust or will and divorce planning, you can learn more by contacting the experienced California estate planning attorney at Von Rock Law and scheduling a consultation to discuss your particular concerns in greater detail.
Rather than updating a current will, it is generally best to revoke the existing will and create an entirely new Last Will and Testament that reflects your new circumstances. Even though benefits reserved for your spouse are automatically canceled once your divorce is final, you will need a new will with new terms and beneficiaries. Gifts bequeathed to a former spouse are automatically revoked during divorce, but these gifts will either go to an alternative beneficiary or a residuary beneficiary. Updating beneficiaries can ensure that these gifts are distributed according to your wishes. In addition, if your will previously listed your spouse as executor of your estate, you will need to name a new executor to fill that role. You may also wish to designate a guardian for any minor children.
For individuals who had living trusts during their marriage, it is generally best to create a new living trust following the divorce. Since the previous trust is likely to be dissolved, the assets held within that trust will need to be placed in a newly formed trust to ensure that the benefits of the living trust are continued.
Spouses are commonly listed as the beneficiary of bank accounts, investment accounts, and other financial accounts, as well as life insurance policies, and sometimes real estate and motor vehicles. This beneficiary designation will likely need to be updated to name a new person who should receive these assets if the owner passes away.
Individuals who appointed their former spouse as a financial power of attorney during their marriage may wish to revoke this designation and consider appointing a new power of attorney. Individuals who maintain complex ongoing financial arrangements may wish to take this opportunity to evaluate the possible advantages of naming a financial professional, such as an accountant or business attorney, as the agent for their financial power of attorney.
Medical documents like healthcare power of attorney (also known as an advance directive, healthcare surrogate, or designation of patient advocate) often list one spouse as the person with the authority to make medical decisions on the other spouse’s behalf. Many divorcees will want to name another trusted individual as their power of attorney agent following divorce.
The estate planning concerns of a divorce can be complex. If you have questions about a will and divorce planning, or about another divorce-related estate planning matter, you can learn more by contacting the dedicated San Francisco estate planning lawyers of Von Rock Law at (866) 720-0195.