How Does A Divorce Affect An Estate Plan?
In Massachusetts, a divorce revokes all bequests in one’s will to the ex-spouse and all fiduciary appointments in the will in favor of the ex-spouse, including the nomination of the executor, trustee or guardian. All other provisions of one’s will remain valid and the will is read as if the ex-spouse predeceased the testator.
Understanding The Impacts Of A Divorce
The above rule only applies to wills and certain unfunded revocable trusts. It does not apply to life insurance policies or other non-probate transfers. Revocable trusts that are funded by a “pour over” will are governed by this rule, but only with respect to assets passing to the trust under the will. If the trust has been funded during lifetime, or if the trust receives assets as a result of beneficiary designations (e.g., life insurance, retirement accounts, etc.), provisions for the ex-spouse in the trust remain valid and enforceable.
Thus, an ex-spouse who is a beneficiary and/or who is a trustee of a funded revocable trust, will continue to be a beneficiary and/or a trustee despite the divorce. Thus, it is advisable to amend the trust, and probably the will as well, to make sure that one’s property passes to the intended beneficiaries, and not to the ex-spouse.
One type of trust that can pose a problem is an irrevocable life insurance trust. As the name implies, that trust cannot be revoked or amended to exclude an ex-spouse as a beneficiary, nor to remove the ex-spouse as a trustee (or successor trustee). The best solution is to address this as part of the divorce or separation agreement.
One option might be for the ex-spouse to irrevocably waive any and all benefits under the trust and to resign as trustee and/or waive any right to become a successor trustee. If these latter provisions are incorporated into the divorce or separation agreement, then the interest of the ex-spouse in the irrevocable trust should be extinguished. If this issue was not addressed in the course of the divorce, it may be difficult, if not impossible, to exclude the ex-spouse from participating in the irrevocable trust.
If the trust owns only term insurance policies and if the grantor is still insurable, one option is to simply allow the term policies to lapse, create a new irrevocable trust for the remainder beneficiaries (e.g., the children), and purchase a new policy in the name of the new trust. If, however, the policies owned by the trust are whole life policies, unless they have little or no built up cash value, allowing them to lapse can be very costly.
Clearly, after a divorce, one should review one’s estate plan in its entirety. Besides wills and trusts, one should also review what provisions might have been made with respect to powers of attorney, health care proxies, and other documents. Beneficiary designations under retirement plans, life insurance policies, annuities, and similar assets should be reviewed and modified as needed.
Sometimes, the estate plan may also need to be modified to comply with provisions in the divorce or separation agreement. For example, there may be obligations to provide for continued alimony payments and/or child support payments for some period of time. The estate plan may need to be modified to ensure that any such obligations are correctly provided for.
Understand The Impacts Of A Divorce
For more information on how a divorce can impact an estate plan, call Fedele and Murray, P.C., in Norwood at 781-551-5900 or contact us online.