Effect Of Divorce On Wills, Trusts, Beneficiary Designations And Other Estate Planning

Effect Of Divorce On Wills, Trusts, Beneficiary Designations And Other Estate Planning

It is not unusual for married couples to have a will or trust, joint accounts and/or beneficiary designations whereby the spouse is a beneficiary and/or is a fiduciary (i.e., executor, trustee, agent under power of attorney, etc.). However, if the couple divorces, the fiduciary relationship and beneficiary designation (if the spouse is the beneficiary) changes in most cases. So, for example, if you name your spouse as both the executor and beneficiary of your will, then all provisions where your spouse was named as an executor, beneficiary or trustee shall be read as if the former spouse had failed to survive the testator. In other words, your former spouse could neither be a beneficiary nor an executor of your will (assuming you never changed your will before you died if you divorce). One exception is if you name your former spouse as an executor or beneficiary after the divorce, then the appointment of your spouse as a fiduciary (i.e., executor) and as a beneficiary would be upheld as valid. The same rules would apply if the couple had a trust instead of a will. In other words, the former spouse would no longer be entitled to be a trustee or as a beneficiary of your trust (unless done subsequent to divorce) as the trust will be read as if your former spouse had failed to survive you. This would be applicable to joint trusts as well as individual trusts. However, this may not be applicable if there was a valid pre-or post-nuptial agreement.

Furthermore, your former spouse should no longer be able to act as your agent under a financial or medical power of attorney or as your guardian (unless you made an appointment after the divorce). However, there is a question as to whether a financial institution, healthcare provider, etc. knows or questions whether there has been a divorce.

The law is similar on multiple party accounts. So, if one spouse names the other as a beneficiary of a P.O.D. (paid on death) account or survivorship account, then the alternate beneficiary would step in the shoes of the former spouse (and receive funds at death) if there was a divorce. The former spouse is treated as if he or she predeceased the deceased spouse who established the account (unless the account was established after the divorce).

Also, a former spouse would be cut out as a beneficiary of a life insurance policy or retirement account unless the divorce decree designates the former spouse as a beneficiary or if the designation is made after the divorce. If the retirement account is regulated by federal law, the former spouse may still be a beneficiary.

Notwithstanding Texas law generally eliminating a former spouse as a fiduciary or as beneficiary after divorce, this does not prevent a spouse acting as fiduciary or being a beneficiary before the divorce is final. For example, Jackie Kennedy Onassis was in the process of getting divorced from her wealthy shipping magnate husband, Aristotle Onassis, but he died before the divorce was final (making her an extremely wealthy widow). As a result, it is often best to do new estate planning documents, beneficiary designations, etc. before the divorce is final since there is a risk of death, disability, or just lack of trust of the spouse until that time. Some even put extra provisions in their documents due to a concern about a future divorce. For example, you could add language in a power of attorney that “in the event of separation, my spouse may no longer serve as my agent”.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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