Divorce is often one of the most traumatic experiences in a person’s life. In the midst and in the aftermath of the divorce process, one area that people often forget to address is their estate plans. After the divorce, most people no longer want their now ex-spouse to get their property after they pass or make important decisions for them if they become incapacitated. While Colorado law makes some provisions to help make sure that your ex-spouse does not receive your property, you still need to make some changes to your estate plan yourself to give your property to whom you want.
Necessary Post-Divorce Changes to Your Estate Plan
Not all your property is controlled by a will or trust. Life insurance, retirement plans, IRAs, annuities, health savings accounts, and investment accounts all rely on beneficiary designations to pass on. This means that the account holder names an individual who will receive these assets after the owner has passed. In a marriage, spouses will almost always name their spouse as the beneficiary of these accounts. Of course, after a divorce, these beneficiary designations need to be changed immediately. It is important to note that in Colorado, some life insurances automatically revoke an ex-spouse in the event of a divorce.
It is important, however, that you name the right beneficiary for these assets. You should not name a minor or an incapacitated person, as this may require the supervision of the court. Tax-deferred plans especially require attention, as who you name could have estate or income tax implications and negatively effect the possibility for long-term tax-deferred growth. However, naming the right beneficiary is critical. It is so important for you to get expert legal assistance before you make final decisions regarding beneficiaries.
Children and Other Beneficiaries
The reason why you do not want to name minors as beneficiaries is because if you do, the minor will have to have a guardian to manage those assets until the minor becomes 21. Once the minor turns 21, he or she gets full control of the inheritance. Because the court decides on who the guardian will be, there is a real possibility that the ex-spouse can be named as guardian. An alternate situation, which is naming a non-minor as beneficiary to use those funds to take care of your minor, is also risky. There will probably be no way to enforce that agreement and the beneficiary may be tempted to use the money for their own needs.
The arguably best choice for beneficiary designations is naming a trust as beneficiary. You can prevent your ex-spouse from getting access to the money, you have more control of when your children can get their inheritance, and the trustee could be found liable for misusing trust assets. Also, assets that are in a trust are protected from creditors, predators, and bad spending habits.
Your Will and/or Living Trust
In Colorado, a spouse is automatically disinherited in a will after a divorce. However, the same may not apply to a trust. This means that if you do not update your trust, your ex-spouse may receive part of the trust property. Fortunately, your ex-spouse is automatically removed from serving as Personal Representative of your will and Trustee of your trust.
You need a will to nominate a guardian of any minor children. While a judge has the final decision, it is still important for you to express your choice to help the judge make a decision that is in the best interests of your children. This is especially important if your ex-spouse for some reason is unable to be the guardian.
Powers of Attorney
While married, most people give their spouse the power to make financial and medical decisions for them in the event of their incapacity. These powers can be very broad. Fortunately, Colorado again strikes an ex-spouse from this power of authority after a divorce. However, it is important that you name someone to have that authority so that they can automatically assume that position of trust if you ever become incapacitated. Otherwise, your loved ones will have to go before a judge to be named, and that process can take days or weeks.
Taking care of your loved ones is an important part of life. While divorce changes many things about life, you are still able to protect and provide for your loved ones. I am here to help you make changes to your estate plan so that your wishes are updated and continue to be fulfilled, even after a divorce.