HOW TO UPDATE YOUR ESTATE PLAN AFTER A DIVORCE
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Life often throws us the unexpected, and they don’t come much bigger than the breakdown of a marital relationship. There’s no such thing as an easy divorce, even when things are reasonably amicable to start with. Once the lawyers get their teeth into it, things can get challenging, often emotional and almost always expensive. For example, if the two of you used to share finances and had an estate plan together, the likelihood is that things will change after the divorce. We recognise that updating your estate plan after a divorce can be an overwhelming task.
This article aims to point you in the right direction and offers a suggested process to follow, especially for those who have recently become divorced and, as a consequence, the previous estate plan is no longer relevant to your new circumstances.
How to update your Estate Plan following a divorce
There are various important documents within your Estate Plan which you’ll need to review and almost certainly revise after a divorce. Look at the below list to ensure your plan is up-to-date and accurate, despite the changes you’ve recently experienced in your personal life.
1. Revoke Your Will.
If you had Wills in place together whilst married to your former spouse, the first step after the divorce is to invalidate or revoke your joint Will. The best and easiest way to invalidate your Will is to tear it, shred it or burn it. Another option to invalidate your Will is to create a new one, which we wholeheartedly recommend doing soon after the divorce.
2. Name new beneficiaries and create a new Will
When writing a Will, we advise you to expressly say that this Will replaces all former ones and that the new Will is the most recent and effective one. This avoids confusion if another Will, which was earlier thought to be destroyed, shows up unexpectedly. It would be best if you named new beneficiaries, as most likely the previous one included your former spouse and children, but now you can and should think of who will be inheriting your assets after death.
3. Name new Powers of Attorney
It’s common to name your spouse as your Attorney for medical and/or legal matters. If you had it this way, it’s time to update these important documents and name new Attorneys who will act in your best interests for healthcare, business and legal matters should you no longer be able to do so yourself.
4. Consider a Trust
Following a divorce, and if you don’t already have one, setting up a Trust to hold and shelter your assets from taxes whilst also ensuring they are protected from any predators is a smart move. You can also legally appoint a professional Trustee and investment manager to oversee the day-to-day operations of the trust’s assets and make sure they are distributed in line with your wishes. With Trusts, you have a say on which assets in your estate are meant to be for the benefit of your children if you die.
5. Review and update guardianship for minor children
If you have minor children, you and your ex-spouse may already have Temporary and Permanent Guardianship arrangements in place. Review the existing documents or make new ones separately as if both of you pass away while your children are still minors, and you may no longer agree on who the guardians should be.
6. Review your prenuptial (or postnuptial) agreement
If you’re about to begin the divorce process and have a pre- or postnuptial agreement, you should review the terms you agreed to in the original document to remind yourselves exactly what each of you is entitled to.
7. Review your Life Insurance policy
It’s important to review your Life Insurance policy or policies so you’re clear on how they are paid for and what they guarantee. You may not need to do anything, but you should at least revisit the sums assured and the percentage amounts that are paid to the named beneficiaries to see if your objectives remain the same and if the levels of cover are as relevant as they were originally.
Make sure that any life policies have named beneficiaries so that the proceeds bypass your estate on death and go directly and quickly to those you want to inherit from you. The last thing we want is for assets to get caught in probate and IHT to have to be paid on their value when there is no need for it. If your former spouse was a beneficiary and you now want those proceeds to go to somebody else, you should contact your insurance broker to discuss your options and if appropriate, change the beneficiaries.
Updating your estate plan
Divorce is never easy, but knowing how to handle your estate after and during one can help you move forward. It’s also an excellent time to remind yourself that divorce is not the only time you should be worried about protecting your assets. As a rule of thumb, one should review their estate planning documents every five years or when a significant life event occurs, such as a marriage, a new child, or a death in the family.
We recommend you engage in the services of an experienced Estate Planning specialist to help you go through the documents, update them or advise on the benefits of certain Estate Planning solutions tailored to your specific circumstances.
Asset Protection
Former spouses are not the only ones who could get access to your assets when you don’t want them to. Asset protection strategies are put in place for tax purposes in the majority of the cases, and especially for anyone with UK-sited assets. Specific HRMC-approved structures (trust or contract-based) can help you protect your assets from Inheritance Taxes (40%), Capital Gains Taxes (28%), and even reduce your Income taxes while allowing you to choose and change the beneficiaries as you please, giving you the flexibility and assurance, you need.
Get in touch with the team at Soteria Trusts for an exploratory meeting to see if and how we can help in your Estate Planning and Asset Protection needs.
