Estate planning after a divorce
Divorce is a difficult process. The last thing you want to think about is updating your estate plan. Lack of information is a common reason for inaction. See my checklist below on being prepared for every situation.
Appoint a healthcare power of attorney
Use an estate planning attorney to prepare a healthcare power of attorney. A healthcare power of attorney appoints a person to make your healthcare decisions, including end of life decisions, if your doctor determines you are not competent to make the decisions. Without a healthcare power of attorney, a person would need to go through the court process of being appointed as your legal guardian to make your healthcare decisions. This can cost hundreds of dollars in attorney fees; thousands if it is a contested process. A valid healthcare power of attorney should cost less than $200 to execute and it is valid for your life unless it is revoked.
2. Appoint a financial power of attorney
In Iowa, there is a separate statute that governs the authority to manage a person’s property under a power of attorney. If you have a power of attorney document, read it closely to determine what authority it conveys to the person you have appointed to act on your behalf. A financial power of attorney authorizes a person to manage your property. The authority can be effective immediately or after a certain condition has been met (springing power of attorney). The person appointed should only act when instructed by the principal (this would be you) if you are competent or if a doctor has determined in writing that the principal is not competent to manage their property. Without a financial power of attorney, a person would need to go through the court process of being appointed your legal conservator to manage your property.
3. Appoint a guardian for your minor children
In a Last Will and Testament, you can appoint a guardian for your children who are under the age of eighteen. This is important if the child’s other parent predeceases you, or if the other parent consents to the appointment of the guardian or if it can be proven that the other parent lacks consistent parental participation in the life of the minor. Information about who to appoint as your child’s guardian can be found here. You do not need to get consent by the person you appoint because they can decline the appointment if the situation occurs where the minor child needs a guardian.
4. Establish a trust
A revocable trust, if correctly funded, can avoid the time consuming and expensive process of probate. Probate is required when there is an asset, often real estate, that does not have a surviving owner. The law requires that the court oversee the transfer or sale of certain assets through a legal process called probate. A more detailed explanation of a revocable trust can be found here.
A testamentary trust is part of a Last Will and Testament. It is often used to have a child’s inheritance managed by a trustee. This is important if you have minor children during a divorce and want to avoid the other parent from being able to manage the child’s inheritance. A testamentary trust usually doesn’t avoid probate because it cannot be funded until after the death of the person who created the Will. How to create and transfer assets to a testamentary trust can be found here.
5. Update your beneficiaries
Life insurance, retirement accounts and investment accounts all permit a beneficiary designation. When an asset has a beneficiary designation, they receive the asset without the need for court involvement. If you don’t name a beneficiary, the asset will transfer under Iowa intestate law to your heirs, but will likely be subject to the probate process.
Many companies will allow you login in to your secure account to update your beneficiary designations. This means that your designation may be as easy as 10 minutes on your computer.
A divorce does not change your beneficiary designations, it is something that the asset owner has to do themselves.
6. Designate a payable on death person
Checking and saving accounts, HSA accounts, and CDs permit a payable on death (POD) designation. When there is a POD on an account, the financial institution is required to pay the account to the designee. This is important to free up funds for funeral or after death arrangements. If there is not a POD with the account, and there is more than $50,000 in the account, then probate is required. Contact your financial institution to add a POD to each account.
If you have a joint account with your ex-spouse, they will have full right of ownership after your death. Find an alternative to sharing child expenses that do not include owning a joint account with your ex-spouse.
A bank account named for a minor is not part of your estate. The minor’s custodian (parent or guardian) will have authority to manage the account.
Hire an estate sherpa
I created the Will in a Day® program and the Revocable Trust package to ease the stress of estate planning. Both options are available in a 90-minute in-person meeting which includes the signing. You can go to the scheduling page now and book your time. Costs and services are listed with each package.
At a minimum, get your power of attorney documents in place. I am able to help you with this in 60 minutes without the need for you to leave your chair. The cost is $150 for both documents. Book your time here.
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