Perhaps no life event imposes a more significant need to update an estate plan than a separation or divorce. Separation usually causes a drastic change in both personal finances and estate planning objectives. If you are going through a separation, the topics outlined below are just a few of the issues that you should discuss with your estate planning attorney.
Will or Revocable Trust
In North Carolina, a divorce revokes any gifts in your Will to your ex-spouse. However, separation from your spouse does not affect either your Will or the application intestate succession laws. If you are separated and have not executed a separation agreement, you should have a Will or trust in place. Even if you execute a new Will or trust, your spouse can file for an elective share upon your death. However, the right to an elective share can be waived in a separation agreement.
Guardianship is another issue that should be addressed in your Will. If you pass away while your children are minors, your ex-spouse will likely raise your children free from the interference of others. But if both parents are deceased, a guardian of the person will be appointed. Specifying your choice of guardian will assist the Court and could help prevent family conflict.
Even though you may not be able to prevent your ex-spouse from having custody of your children, you can ensure that someone else handles their inherited assets. If you intend to leave assets to your minor children, the best way to accomplish this is to create a trust for their benefit. If you leave assets directly to a minor child, a guardian will have to be appointed to handle the minor’s estate. This will result in additional costs and could mean that your ex-spouse ends up controlling your child’s inheritance. It will also result in your child having access to those funds at age 18. Another bad idea is leaving property to someone else with instructions to “take care of” your children. There are numerous reasons why this could result in your children receiving nothing. Assets held in trust can be protected from irresponsible spending, creditors, and accidental disinheritance, and ensure that the funds are spent on your children.
Assets that let you name a beneficiary, such as life insurance policies, retirement plans and annuities, are not controlled by your will or trust. Instead they will be paid directly to the person you have listed as your beneficiary. If you named your spouse as beneficiary when you were married, you may wish to change that after a separation. Neither a separation nor divorce automatically revokes a beneficiary designation in favor of an ex-spouse. A separation agreement that specifically waives a right to certain benefits may not even be effective. If you intend for your assets with beneficiary designation to be used to care for your minor children, the best way to accomplish this is to create a trust for your children as mentioned above and designate the trust as the beneficiary of those assets.
Powers of Attorney
If you no longer wish to be married to your spouse, you probably do not want your spouse making financial or medical decisions for you. Neither separation nor divorce automatically terminate powers of attorney in North Carolina. Therefore, it is imperative that you amend these documents.
Second marriages create several estate planning issues. Balancing protections for your new spouse and your children from your first marriage takes careful planning and frank discussions. One factor that many people do not consider in a second marriage is how your spouse’s long-term care planning will affect your assets. It is wise to consider purchasing a long-term care insurance policy if you are remarrying.