Navigating Estate Planning (After Divorce)

Between sweater season and Halloween you would think this seems like a great time of year to talk about estate planning- but the reality of chatting about death makes many of my clients squeamish especially when it comes to their own death and planning for it.

Sorry-not-sorry estate planning is the topic we are chatting about today. Specifically we will be chatting about why estate planning is so crucial, estate planning essentials to consider, and tax implications.

Why is estate planning so important?

Great question- I would say estate planning is actually crucial (especially after divorce). This crucial activity helps protects your assets, provides a plan for your loved ones, can help avoid legal complications that sometimes affect estates and gifts you with confidence.

By clearly outlining your wishes in your estate plan you can ensure your hard earned assets actually get distributed according to your wishes. This is especially important post divorce as previous plans may have included an ex-spouse. The most interesting thing I have seen specified in some wills is a clause requiring their current spouse to create a prenuptial agreement prior to getting remarried that sets the expectation that current children will not unintentionally disinherited.

Estate planning also can help ensure loved ones are provided for, which can be especially important if family dynamics have changed.

Also from the perspective of loved ones a solid estate plan can make their lives a little easier when going through the probate and distribution process, which leads into the point that it can help avoid legal complications. A well drafted estate plan can help prevent disputes among family members and other beneficiaries which ensures a smoother process for everyone involved.

The most important point in why estate planning is crucial is it provides you with confience. Knowing that your plans are solid and your loved ones are actually provided for can actually relieve stress.

Ok, so what do I actually need to do for an estate plan?

The estate planning essentials include updating your will, updating beneficiary designations, reviewing powers of attorney, considering if a trusts is needed, and updating guardianship.

With regard to updating your will- I get asked all the time: "Isn't that enough?"

Short answer: probably not.

Longer answer: Many estate planning attorneys say this too. You really need to take a big picture of your estate and your vision and go from there. That being said- Please update your will. You may need to revoke previous wills. You will need to do this formally in order to prevent confusion and ensure the most recent will is considered valid. The new one needs to clearly outline your current wishes and replaces any previous versions.

The next step is to update your beneficiary designations. This needs to happen on all life insurance policies, retirement accounts, and for other assets. You may need to remove your ex spouse and formally designate a new beneficiary. Failing to do this means that your ex will unintentionally inherit assets you intended for someone else. If there are kids involved consider the options available to you to help ensure their inheritance is protected.

When I say consider your options, I'm mostly referring to considering the appropriateness of a trust. Trusts are effectively an entity that can hold assets and fallow specific instructions for distribution. Establishing a trust can also be an effective way to manage and/or protect your children's inheritance. If their are minor children in the picture gifting them with money to ensure their future is a great thing- but if it is given to them directly it might also make them a magnate for people that may try misuse those funds for their own benefit as opposed to the children's benefit. By setting up a trust, you are still ensuring your child is provided for, but also have more control over the circumstances in which money is distributed and spent.

Also, if minor children are in the picture- you need to update guardianship arrangements. This insures that your children are cared for by someone you trust. Taking the extra step of finding contingent guardians is also a good call. If joint custody is in the picture, it gets more complicated- there may need to be lawyers involved with nominating guardianship.

The next estate planning essential to consider is power of attorney. This is the exercise of finding someone you trust to make financial and healthcare decisions on your behalf if for whatever reason you are unable to do so. If you had previously made plans you may want to consider revoking powers of attorney if your ex spouse was previously designated. After that you need to appoint a different trusted individual to help in the event you are unable to do so.

Why are you snickering about death and taxes?

Because it is kind of true- death and taxes are two things to count on. While we are on the topic, taxes and estate planning actually go together really well. First make sure you understand if/how your tax situation might have changed post divorce. Remember your filing status typically has changed (single as compared to married filing jointly or separately). There may be other changes, and it is good to be proactive to understand them.

Next you want to gain an understanding of estate taxes. These are the taxes impost on the estate of a deceased person. For 2024 the federal estate tax threshold is $13.61 Million for individuals and $27.22 for couples filing married. States can have estate taxes too. As a result planning may be in your best interest to ensure as much of your hard earned estate goes into the hands of those intended as opposed to taxes and fees.

If you are (re)married portability allows a surviving spouse to use any unused portion of the deceased spouses estate tax exemption.

The next question that gets asked is- what can I do?

The short answer: A lot.

The longer answer: Often you see people moving assets from their estates into a trust (be aware trusts are taxed too) and gifting assets while they are alive.

With regard to gifting strategies, you can make gifts to individuals or charitable donations to reduce the size of your estate. Be aware of something called a gift tax. The annual exclusion is $17,000 per recipient. You are only paying taxes on the amount above the exclusion and it may count against the lifetime estate tax exemption.

As previously mentioned- planning can do a lot in the tax space.

Ok, this kind of sounds complicated...

There are a variety of professionals you can reach out to in order to navigate the complexities and ensure that the decisions you are making are actually in alignment with your intentions.

As a financial advisor, I help you manage your assets and ensure your estate plan is in alignment with your goals. The goals can include retirement planning, tax strategies and asset allocation.

Estate Planning Attorneys are the next professional I see most often involved in this process. They are attorneys who specializes in creating wills, trusts and powers of attorney. They ensure your estate plan complies with state and federal laws and accurately reflect your wishes.

Estate Planning can be complicated, but you don't have to do it alone.

Breathe

Estate planning might seem daunting- it's a crucial step towards securing confidence for yourself and preparing your loved ones. We talked about the importance of estate planning, essential estate planning activities to consider, and touched on tax implications. We also talked about professionals you can hire to help you with this process.

Remember, this is your life and your legacy. Be proactive and fully informed.

Brianna Beski is a financial advisor and CDFA at Raymond James, based in Colorado. She focuses on helping people have confidence in their financial futures. For the rest of the story, please visit her website or email her at brianna.beski@raymondjames.com.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brianna Beski of Raymond James Branch 3BA and not necessarily those of Raymond James or Raymond James Financial Services. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James does not provide tax or legal advice. Please consult your own legal or tax professional for more detailed information on tax issues and advice as they relate to your specific situation.

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