27th May 2015
Separated? Divorced? “Trust” yourself, not your ex-spouse. You need to think about estate planning after divorce and how it can affect your property, finances and children in the future.
If you are divorced and have minor children, you may not have imagined that if you die your ex may control your property. If you die without a Will, a conservator appointed to take control of your kid’s inheritance has priority of appointment as the personal representative or “executor” of your estate. Most often it is the child’s surviving parent (your ex.) who will be appointed conservator.
Now your ex-spouse would be in control of your estate.
If you leave a Will, you can name your own personal representative who will have priority to serve. But your ex may still be in the picture as your child’s conservator and so your personal representative will have to turn what was your money over to him or her.
If your estate ends up in “probate”, with or without a Will, your children will have automatic rights called “allowances” and be given part of your estate. This is just a given under probate’s own rules – even if your Will says otherwise. Again, you risk having your ex overseeing at least part of your property.
Avoiding probate altogether is the best and safest option for estate planning after divorce. Trusts have been used for this for decades just to avoid probate costs. But they can be surprisingly simple and affordable. A separate document creating an inter-vivos or “living” trust can be set up during your lifetime (instead of at death under your Will). You retain absolute control over it and probably wont even realize is even there. If something happens to you, at death it can receive and hold assets to benefit your children. Unlike a simple Will, trusts need not pass through probate because of this there are no automatic allowances that may be payable to your ex as custodian or conservator. Instead, you pick who will protect your kid’s money.
All of the normal types of assets you would think of can be held in trust, including your home and other real estate, cash deposits, securities, life insurance proceeds and IRA, 401(k) and other retirement assets.
The Trustee you chose to serve at your death will carry out the terms you set for the trust. This usually includes distributions for things like education or other things adults view as “needs” as opposed to mere “wants”. Ordinarily when a child reaches 18 he or she is required to be paid an inheritance. But a trust can delay this. Many of our clients will instead leave money in the hands of their own father, mother, sister or brother to make discretionary distributions to their children until a later age, often 25 or so, at which time a child will allowed their money outright.
Many clients also have special needs children who may receive government benefits. If they get an inheritance without the protection of a discretionary trust, benefits can be lost. A trust can prevent this while allowing life enhancing services and items to be provided that wont disqualify them from getting benefits.
Estate planning after divorce is crucial. Trusting your ex with your money may not set well if something were to happen to you, but using a trust to prevent this can be easy, affordable and necessary.