Estate Planning and Insurance Concerns When You Divorce
If you are getting a divorce from your spouse, you have a lot of planning to do. You will need to name your own beneficiaries, organize your divided assets, and set up your individual estate.
It is important that you meet with a qualified attorney to discuss the specifics of planning your estate to ensure that your wishes are carried out as you desire. You need to be well versed in the most strategic methods of dividing your joint estate so that you do not end up paying all of the taxes while he or she enjoys the benefits of your assets.
I have outlined some important information for you to be aware of when planning your estate after your divorce. Please keep in mind that divorces lend themselves to new structures for individuals. You will want to meet with a qualified attorney to discuss how to best protect your new estate.
Assigning Your Beneficiary
During your marriage, chances are your spouse was the sole or major beneficiary of your estate. After your divorce, it is important that you designate a new beneficiary on all of your documents and for all of your accounts.
The federal law called ERISA pre-empts state laws that automatically remove an ex-spouse as the beneficiary of retirement plans. Therefore, it’s important that you remove the ex-spouse as the beneficiary unless you wish for him or her to remain as your designated beneficiary.
Please note: Once you re-name your beneficiary, it is possible that your ex-spouse will still retain the rights to part of your retirement benefits that you accrued during the time of your marriage. I recommend consulting with a qualified estate planning attorney to determine just how much of your benefits and estate will be designated to your ex-spouse after your divorce.
Dividing Your Assets
During the course of your divorce, you and your ex-spouse determine how your joint estate will be divided. Take a minute to review a few assets that you will need to divide: 1) appreciated assets, such as mutual funds, and stocks; 2) real estate, including investments, repairs, insurances and mortgages; 3) personal property, such as jewelry, artwork and clothes; 4) retirement plans, such as qualified plans and IRA’s; and 5) your home, which can be divided in different ways to meet both parties’ financial needs.
Establishing a Trust
Many people will create a Trust to ensure that a designated Trustee will have control over funds after death. There are three Trusts that you can explore when planning your estate:
1. The Revocable Living Trust helps you avoid probate by allowing your Trustee to distribute your assets according to the instructions that you have outlined.
2. The Children’s Trust allows you to designate funds that your child will use later in his life to pay for his education, home, etc.
3. The Irrevocable Life Insurance Trust, otherwise known as “ILIT”, allows you to distribute the death benefit estate tax-free when and how you want, even long after you’re gone.
Divorce is never easy. It’s typically a very long and arduous process as both parties work to get their portions of the shared assets. If you’re going through a divorce it is important to speak with a qualified attorney who can walk you through all of the tax and asset considerations that you need to be aware of to ensure that you receive the best possible settlement.