Estate planning, often misconstrued as a privilege of the wealthy, is a necessity for anyone seeking to secure their assets and ensure the well-being of their loved ones after they pass. With divorce comes the need to revisit their estate plan—or think about it for the first time .
Purposes of Estate Planning
A key objective of estate planning is navigating the often complex, costly, and public process of administering an estate and distributing assets to designated beneficiaries. The American Bar Association defines this formal legal procedure as probate. For many, this process is an unwelcome burden, characterized by its protracted timeline, public scrutiny, and substantial costs. According to one law firm in Missouri, the average probate proceeding can extend six to nine months. However, with careful planning, assets often do not have to be subject to the probate process.
Moreover, estate planning provides avenues to mitigate or eliminate the burden of estate taxes. Currently, in 2025, the federal estate tax is applicable to estates valued above $13,990,000. However, this threshold is slated to be halved on December 31, 2025, potentially subjecting a significantly larger number of people to this tax. This impending change underscores the importance of proactive planning to minimize potential tax liabilities.
Perhaps the most compelling reason for engaging in estate planning is ensuring your assets are distributed according to your wishes. This fundamental aspect guarantees that your hard-earned wealth and cherished possessions are passed on to the individuals you intend.
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Common Components of an Estate Plan
A robust estate plan typically integrates several essential legal instruments. A Last Will and Testament, while not sufficient to circumvent probate on its own, empowers you to direct the distribution of your probate assets. Should your attorney recommend a trust (discussed later), a "Pourover Will" can seamlessly transfer any inadvertently omitted assets into the trust. Equally important is the meticulous listing and periodic review of beneficiary designations on all relevant accounts, ensuring they remain aligned with your current intentions.
Powers of Attorney play a pivotal role in managing your affairs in the event of incapacitation. A Financial Power of Attorney designates an agent to handle your financial matters, such as paying bills, managing investments, and handling insurance claims. A Health Care Power of Attorney authorizes an individual to make medical decisions on your behalf if you are unable to do so, ensuring your healthcare preferences are honored.
A Revocable Living Trust, when properly executed and funded, can be instrumental in avoiding probate and ensuring assets are distributed according to your precise instructions. It also provides a layer of protection in the event of incapacity by allowing you to appoint a successor or co-trustee. A revocable living trust often proves beneficial for complex distribution plans, such as those involving trusts for beneficiaries with specific needs or restricted beneficiary access to assets until a specified age.
Essential Steps to Take After Your Divorce
Divorce necessitates a thorough reassessment and revision of your estate plan. Below we outline several critical steps to follow as soon as you are divorced:
- Schedule a consultation with an estate planning attorney. A qualified estate planning attorney can direct you to the specific legal documents you need and suggest estate strategies that are consistent with your goals.
- Establish new documents or update existing ones. Existing documents may still list your ex-spouse as your power of attorney, executor, or trustee, requiring immediate updates to avoid unintended consequences. If you have minor children, carefully consider who will manage their inheritance and make crucial decisions on their behalf. All of your documentation should match your intended goals.
- Review and update beneficiary designations. Do this for all accounts, including life insurance policies, retirement accounts, and investment accounts. Even after a divorce is finalized, your ex-spouse may remain the designated beneficiary, potentially leading to unintended outcomes. The Supreme Court case Hillman v. Maretta serves as a stark reminder of the importance of this review. In this case, the Court found that a man’s ex-spouse was entitled to his federal life insurance death benefit as she was currently listed as the beneficiary, even though he had remarried.
- Review your divorce decree. To ensure compliance with all provisions, review your divorce decree. For instance, your ex-spouse may remain a beneficiary on specific assets, such as a life insurance policy mandated for alimony or child support.
Estate planning is a dynamic and evolving process that should adapt to life's changes, particularly after a divorce. By understanding the core principles and taking proactive steps, you can ensure your assets are protected and your loved ones are provided for. Consulting with an experienced estate planning attorney can help ensure your legacy is preserved and your wishes are honored by creating a personalized plan that aligns with your unique circumstances and goals.
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The information in contained herein is intended for educational purposes only, and should not be considered legal advice. For legal advice, you should consult with a licensed attorney and estate planning professional. Investment advice, financial planning, and retirement plan services are provided by Prosperity Planning, Inc., an SEC registered investment advisor. The information contained herein, including but not limited to research, market valuations, calculations, estimates and other material obtained from these sources are believed to be reliable. However, Prosperity Planning, Inc. does not warrant its accuracy or completeness. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in any trading strategy. If an offer of securities is made, it will be under a definitive investment management agreement prepared on behalf of Prosperity which contains material information not contained herein and which supersedes this information in its entirety. Any investment involves significant risk, including a complete loss of capital and conflicts of interest. The applicable definitive investment management agreement and Form ADV Part 2A will contain a more thorough discussion of risk and conflict, which should be carefully reviewed before making any investment decision.
