26 Oct Impact Of Divorce On Prior Estate Planning:Automatic Revocation Of All Your Ex’s Who Live In Texas
What happens if you pass and if you named your spouse as the beneficiary of your Will, trust, life insurance policy, IRA or bank account and you never change the beneficiary after divorce? It depends on the state in which you live. In Texas (and in many other states), the former spouse generally is automatically revoked as a beneficiary and as a fiduciary unless the divorce decree indicates otherwise as set forth below:
If you never changed the designation of your spouse as the beneficiary of your life insurance policy prior to your death, then the former spouse should not be entitled to the proceeds unless: (1) divorce decree states otherwise; (2) the former spouse is designated to receive the proceeds in trust for the benefit of the child or dependent of the spouse; or (3) the insured redesignates the former spouse as the beneficiary after the divorce. Otherwise, the proceeds would then be paid to the named alternate beneficiary. Notice should be given to the life insurance company prior to the policy being paid.
Retirement Accounts, Annuities, Multi-party Accounts, and other Financial Plans
Similar to life insurance policies, the ex-spouse beneficiary designation prior to the divorce decree of the IRAs, annuities, bank accounts and other financial plans would not be effective unless it fits within one of the three exceptions mentioned in the preceding paragraph. However, the rules are different for a 401(k), pensions and other federal plans as those designations remain in place until you change the same. Notice should be given to the holder of the IRA, annuities, bank accounts and other financial plans prior to payment. Otherwise, there is no liability for paying the former spouse.
Wills and Trusts
If you name your former spouse as the beneficiary of your Will or trust and it’s never changed after the divorce decree, Texas again presumes you wouldn’t want your ex-spouse to be the beneficiary. Texas will treat the Will or trust as if the spouse predeceased the person who wrote the Will or trust (so you should always have an alternate beneficiary). Additionally, the former spouse will not be able to act as executor or trustee unless you redesignated the former spouse after the divorce decree.
Medical and Financial Powers of Attorney
Similar to the treatment of ex-spouses named as an executor or trustee prior to a divorce decree that was not changed after the divorce decree, the agent named in your financial or medical power of attorney shall not be effective (and the alternate agent shall serve instead) upon divorce unless redesignated after the divorce.
Notwithstanding the laws in Texas as set forth above, it is best that new beneficiary designations and new estate planning documents be considered when it is known that there are irreconcilable differences (in case of death before the divorce is final) unless it is part of the settlement or divorce decree or there was a valid pre-or post-nuptial agreement. If you are concerned about actions of a spouse during marriage, but prior to divorce, you can add language in contemplation of a separation or divorce. For example, your financial power of attorney could state “my spouse can no longer serve as agent if a divorce petition has been filed.”
Whether you want a former spouse to act as a fiduciary or not or whether you want a former spouse to be a beneficiary or not, action should be taken so your goals are met.
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.