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.