No Spouse, No Backup: You Need a Plan
Let’s imagine that you have successfully ended your marriage. You have a signed divorce decree, and you are settling into your new independent life. The mediated agreement you created seems fair and workable, and the children are adjusting.
Before you get too comfortable, there are some additional issues you should pay attention to. Unlike the rules within your agreement, these items are optional but just as important.
Estate Planning
You have an estate. Just about everyone does. It comprises everything you own: your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions, etc. No matter how large or how modest, everyone has an estate and something in common—you can’t take it with you when you die.
When that happens—and it is a “when,” not an “if”—you probably want to control how those things are given to the people or organizations you care most about. To ensure your wishes are carried out, you need to provide written instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it.
For example, if you have children, they cannot receive money directly from your estate (even if they are a named beneficiary) until they reach age 18. Even then, most parents would prefer some oversight on the funds until the children are older, perhaps out of college.
And, of course, you want your estate to be distributed with the least amount paid in taxes, legal fees, and court costs. It is wise to consult an attorney who specializes in estate planning to navigate your options.
The bottom line is, if you don’t have a written plan for what happens after you pass away, then New York State has their own plan for you. But you—and your heirs—probably wouldn’t like it.
Your Estate Following Divorce
When you are married, what happens after you pass away is often much simpler. Your estate would generally pass to your spouse. Now that you are divorced, you do not have a spouse. While some items have beneficiaries such as retirement accounts or investment assets, many do not. It is especially important to take care of these items.
The House
The most important asset that does not have a beneficiary is usually your house. When you are without a spouse and own a house solely in your own name, it is essential that you direct what is to be done with it when you are gone. If it is sold, how the equity in the property is to be handled should also be specified.
Retirement Funds
It is very important to update the beneficiary on your retirement funds to align with your intentions. Many times this is forgotten; your ex-spouse remains on the forms and may receive the funds in the future.
A popular option is to make “my estate” the beneficiary so the funds will go into your estate. Then these funds can be managed and preserved for your children according to the terms of your will.
Life Insurance
As part of a divorce in which children are involved, often the divorce agreement specifies that one or both spouses have a minimum amount of life insurance for which the ex-spouse is the beneficiary. The surviving parent then has direct access to funds to maintain the children’s life style.
Many times there are considerable funds in excess of the minimum. You can leave the balance to your estate by naming a certain percentage to go to your estate.
Last Will and Testament
There is an expression regarding wills: Where there’s a will, there’s a way; but no will, no way.
Your estate plan begins with a will. A will is a directive that records your intentions regarding your assets and establishes your plans for your children’s care when you pass away. It is a way to collect all of your assets under one “roof,” called your estate. It provides the opportunity to name a trusted person, called an executor, to manage your estate.
Almost every divorce agreement suggests, but does not require, that you each update or create your wills. You may have had one when you were married, but that will is no longer operative after your divorce is final. If you had a will when you were married, then you need to modify it. If you didn’t have one, you should create one as soon as possible. In either case, your will’s date should be after your divorce is final.
Unless you have a will, the probate process figures out who will get the house and other assets. Probate can be complicated, time-consuming, and expensive.
A Note Regarding New York State Probate
Probate is the legal process proving the validity in court of an individual’s Last Will and Testament. Having a will provides your instructions, but it does not avoid probate. The ins and outs of probate are complex. Again, please consult an estate planning attorney about your particular circumstances.
Other Important Life Instructions
Power of Attorney (POA)
A power of attorney is a document that transfers your financial and legal “power” to another person when you are not capable of managing your finances or other legal matters. The POA gives specific and limited power to another person when you are incapacitated through medical issues or unavailable due to other reasons, such as when you are out of the country. It is prudent to have a back–up person to manage your bills, mortgage and other obligations when you are not able.
Your spouse was the natural back-up. He or she usually had access to your joint bank accounts, both in-person, via check, or using online banking. After divorce, unless you make specific arrangements, bills may not get paid, and you will have a complicated mess to sort out when you are able to manage your finances again.
A POA can be drafted by an attorney at the same time as your will. It needs to be signed and witnessed in a very specific manner, so obtaining competent advice is prudent. The updated POA should be dated after your divorce. Also note that your POA expires when you die.
Health Care Proxy
As with your financial and legal affairs, you need to have a medical back-up plan called a health care proxy. When you were married, if you did not have a health care proxy, your spouse had authority to make medical decisions on your behalf. Who will make those decisions now?
After divorce, it is important to complete a Health Care Proxy form in which you designate someone to make decisions and to honor the directions that you included in it. Your physician or attorney may provide one, or you can purchase one online. If you do purchase one online, be sure it is valid in New York State.
Note that proxies are often required prior to an in-hospital stay. Be sure all of your physicians have a copy as well as the people you named in your proxy. If you completed one on your own, it’s also a good idea to give your attorney and other trusted people in your life a copy.
Have a Plan, Have Peace of Mind
There is an expression that says, “Man makes plans and God laughs.” Preparing for the unexpected is always important but often overlooked. Now that you are on your own, it is wise and thoughtful to take care of details that would make the unexpected a lot easier on those you care about.
About the Author: David B. Cook, Attorney at Law, has a general law practice with emphasis in the areas of wills, trusts, estates, real estate, businesses, and nonprofit organizations. David is skilled in helping his clients buy or sell a home, start a business, and cope with life’s crises and needs. The Law Offices of David B. Cook are located at 153 West Main Street, Webster, New York 14580. For more information, please call 585-872-2050.
Photo Credit: ©iStockPhoto