Divorce, Death and Designations: Updating Estate Plan Documents

Susan Copeland, CFP®, CDFA® 
Avantax Senior Financial Planning Analyst

The last thing your client probably wants to think about during or immediately after splitting with their spouse is their own mortality. But the truth is that their priorities and goals in life will likely change after a divorce – which means their estate plan will need to be adjusted accordingly.

Clients commonly have the misconception that they don’t need to take any action because their divorce judgement includes a provision terminating their spouse’s interest. However, that isn’t always the case (laws vary depending on where your client resides), which is why it’s critical to conduct a comprehensive estate plan review with clients who are facing divorce – ideally, both before and after the divorce. This will help you get an idea of how their estate planning documents currently read and how they should be updated once the divorce decree is finalized. 

Here are several common documents and accounts to review that will help guide the process:

Wills and Trusts. These are perhaps two of the most critical documents to review with your client. In addition to updating their will and trust to remove their former spouse, clients with young children may want to name a guardian to care for their children in the event of the client’s death. 

Power of attorney (POA). True to its name, a POA is a powerful legal document that can give tremendous authority to another person to access your client’s financial accounts and information and to make decisions on your client’s behalf – and if that person is your client’s ex-spouse, things might get a little awkward. Since POA revocation rules vary by state, encourage your client to check with their lawyer to ensure they update this document according to align with their new wishes.

Healthcare Power of Attorney. Unless your client still wants their ex-spouse to make critical healthcare decisions for them in the case of a medical emergency, their living will, medical power of attorney and/or do-not-resuscitate order (DNR) should all be updated. 

Any account or asset with a beneficiary. This category can be overwhelming, but here are some common items to look for: 

• 401(k)s
• IRAs
• A life insurance policy (whether held with their employer or outside of work)
• Any accounts with a transfer on death (TOD) or payable on death (POD) designation

In addition to ensuring their primary beneficiary is updated, remind your client that designating a contingent beneficiary is equally as important. You can read more about beneficiaries and QDROs in this Avantax blog.

Post-divorce estate planning can be complex and overwhelming, but it’s an essential step to helping protect your client’s assets and legacy.  As their tax-intelligent Financial Professional, you can play a key role in helping ensure an easy transfer of assets to the appropriate parties.