The process of going through a divorce or legal separation from one’s spouse can be time-consuming, expensive, and above all, emotionally draining. Because of this, many individuals enduring such a separation often overlook many important aspects of their lives that their (now former) spouse was heavily involved. One of those aspects is the individual’s estate planning. More often than not, when a married couple hires an attorney to prepare their estate planning documents, the documents state that all the assets are left to the survivor, and they are each named in important roles for the other. Changing these documents both while a separation is pending, as well as upon finalization of a divorce, is frequently overlooked.
Fortunately, the governing estate planning statute in New York, the Estates, Powers, and Trusts Law (“EPTL”), has contemplated this important issue. EPTL § 5-1.4 states that, a divorce or legal separation revokes any revocable disposition of property made by a divorced individual to the former spouse, including bequests governed by a will, beneficiary designation, trust, or bank account. Further, it also revokes any revocable nominations of the former spouse to serve in any fiduciary or representative capacity. In such event, the law treats the former spouse as having predeceased the divorced individual.
These provisions outlined in the EPTL are beneficial for those divorced individuals who may inadvertently fail to update their important estate planning documents. However, they should not be relied on for a variety of reasons. First, the statute only applies to revocable dispositions of property and revocable nominations. Many may assume that if such dispositions or nominations are irrevocable, the former spouse cannot be removed regardless; yet it is unlikely that this is the case. While many legal documents may be “irrevocable,” there are other statutes under New York law that nevertheless allow changes in certain circumstances. Therefore, it is important that any such irrevocable dispositions or nominations be reviewed.
Furthermore, when the provisions of EPTL § 5-1.4 are invoked, the former spouse is treated as having predeceased the divorced individual. This means that whatever contingency is listed in the document (assuming a contingency is even contemplated) in the event of the spouse’s death will control the disposition of the assets or appointment nomination. This may not be the individual’s intent, as they may want a different distribution pattern or different individuals named. Similarly, EPTL § 5-1.4 also fails to revoke dispositions or nominations for family members of a former spouse. That being said, if a former spouse’s siblings or parents, for example, are receiving a bequest under the individual’s will, or named as a guardian for the children or trustee of a trust created to benefit the children, those terms will not be changed. This is crucial to consider when families may have once been intertwined but no longer get along. Finally, by simply relying on the statute, the former spouse could attempt to contest the revocations and claim that was not the individual’s intent. Although he or she would likely be unsuccessful in this challenge, the contest alone could be a burden.
In order to avoid any issues, clients going through a divorce or separation should be updating their documents. Prior to a final divorce decree or judicial separation, however, the spouse cannot be disinherited as he or she has an elective share that can be claimed against the estate (equal to roughly one-third). While this is an impediment pending the finalization of the separation process, the soon-to-be divorced individual should ensure that the spouse does not inherit the balance of his or her estate, and that he or she is removed on any nomination appointments.
Below is a list of items to be considered upon divorce:
- Execute new estate planning documents, including a Last Will and Testament, Power of Attorney, and Health Care Proxy.
- Update beneficiary designations on assets such as life insurance policies, retirement accounts, pay-on-death bank accounts, and transfer-on-death brokerage accounts.
- Review trusts and seek legal advice on whether they can be amended.
- Re-title jointly held properties, including vehicles and real estate.
- Speak with family members who may have named the individual and his or her former spouse as beneficiaries and encourage them to review their documents.
- Review tax returns to ensure there are no negative tax implications upon the filing of a divorce.
Overall, there are many legal aspects to consider upon both the initiation and finalization of a divorce or judicial separation. Our estate planning attorneys would urge individuals to update their estate planning documents in both situations to ensure that their wishes will be adhered to. To get more information on the effects of a marital dissolution upon one’s estate plan, contact Katz Chwat, P.C. to schedule an appointment.
Posted in: Estate Planning