Estate planning is a crucial — and often underutilized — process that includes many different aspects, the most recognizable of which would be arranging for the distribution of possessions and assets in the event of death.

Creating this plan helps to ensure all pieces of an individual’s estate are disseminated to the proper beneficiaries as quickly and seamlessly as possible while minimizing the probate process.

However, there are certain times throughout life where circumstances will change and adjustments need to be made for how an estate is divided. One of the most common events requiring the revision of beneficiaries is divorce, yet many recent divorcees neglect to update their plans accordingly.

Whether they thought their ex would automatically be removed upon the nullification of their marriage or they simply forgot, failing to update an estate plan after a divorce can have some very unfortunate consequences.

For this reason, it is crucial that financial advisors work closely with estate planning attorneys to better determine the best possible strategies that fit a divorcing client’s unique needs.

Know Your Limitations

While a financial advisor likely understands some aspects of estate planning, it is unreasonable to presume they should have comprehensive knowledge of this complex legal process in addition to their financial education.

It is true that several certifications require a level of estate planning expertise, including CFPs and CLUs, but the majority of financial advisors will not have the proficiency necessary to draft effective plans.

While it may be difficult to admit their own limitations, it is important for financial advisors to let their clients know up front that collaboration with an estate planning attorney would be in their best interests.

Together, they are far more likely to devise a creative — but more importantly administrable — plan for their client to minimize the potential probate and legal hoops that relatives will be put through should the unexpected happen.

However, the advisor’s role will not stop once the plan is created, as it must also be maintained and continually updated after major events in the client’s life, particularly divorce.

After the end of a marriage, countless areas of an estate plan need to be updated to reflect how a client’s assets will be divided now that their ex is unlikely to be the intended recipient of any property or insurance payouts.

 

Keeping Up With Beneficiaries

Some basic accounts, such as life insurance policies, 401Ks and investment accounts, allow for the selection of a beneficiary and do not require a will or trust for funds to be distributed to the selected recipient.

When the client married, they most likely put down their spouse as the beneficiary without giving it much thought. However, contrary to what many believe, divorce does not automatically terminate an ex’s status as beneficiary.

This can be especially problematic if the intent was for the proceeds to benefit the client’s minor children.

While married, they likely felt comfortable that their spouse would use the funds responsibly to continue caring for their children — something that may no longer be the case after their trust and confidence are broken in the divorce.

This may require a more in-depth estate plan to ensure his or her children are the recipients of the funds, as proceeds cannot be given directly to minors until they turn 18. Instead, the probate court would assign a custodian to manage the funds, which in all likelihood will be the ex-spouse.

Creating a trust as the beneficiary would be one option, as it provides more control by allowing for the personal selection of a dependable trustee to administer the distribution and enables the client the ability to provide instructions on how the assets are disseminated.

However, advisors would again want to have them consult an estate planning attorney to determine the best course of action and to assist with the drafting of these documents.

Wills And Living Trusts

Just like the beneficiary on retirement accounts and life insurance, clients likely leave all assets to their spouse when a will or trust is created during marriage.

However, after a recent divorce battle where they just fought to keep as much of their accumulated wealth as possible, it is unlikely they want whatever was able to be salvaged to fall back in their ex’s lap.

While some states have laws that automatically prevent ex-spouses from collecting after a divorce there are many that do not, and there are still numerous potential loopholes that would allow an ex to challenge and potentially cash in on a client’s estate.

In any case, revoking an old will and starting from scratch is the best course of action to prevent complicated and expensive probate battles for the client’s loved ones. This allows them to rework the beneficiaries as well as name a new executor and guardian of their children.

As mentioned above, a trust does have some advantages (such as potentially avoiding probate), though there are several drawbacks as well. Consulting an estate planning attorney to determine the best option for their situation will help ensure the created plan caters to their unique circumstances.

 

Obviously, the goal of estate planning is to avoid stressful inheritance battles for the client’s loved ones. However, many need to be reminded of why it is so important for these documents to be updated after major life events, such as divorce.

Although financial advisors may have some experience with these matters, do not assume that experience is all the qualification needed to handle a client’s estate planning needs.

A financial advisor’s role should be to ensure their client is aware of the significance of proper estate planning, to do what can be done to assist with these matters and to refer them to a specialist to discuss the drafting of more technical aspects of their individualized plan.

Joseph E. Cordell is the principal partner of Cordell & Cordell, a domestic litigation firm focused on representing men in divorce. Since co-founding the firm with his wife, Yvonne, in 1990, he and his team of more than 200 attorneys spread across more than 100 offices in 30 states and the United Kingdom have helped tens of thousands of men going through divorce.