Even if you are divorced, those words may still be more true than you realize. Divorce may uncouple you, but in most states, it does not automatically revoke beneficiary designations such as life insurance, retirement designations or joint tenancy. Upon dissolution of your marriage, your will and trust are revoked. However, there are assets (named above) which are governed by beneficiary designations and not by your will or trust.
One of my clients was married to her husband for 25 years. She was his second wife. His divorce decree divided up the assets and he believed that he did not need to change his beneficiary designation on a life insurance because the divorce decree stated what was his. But this was not true. After her husband’s death, the life insurance company told my client that the beneficiary designation of the first wife controlled. Because her husband and his first wife had children, when the first wife disclaimed the life insurance proceeds, all of the proceeds went to her children. In the husband’s will, he had left his life insurance to my client and provided for his children as well. But his intent, even though it was in a will, did not override the beneficiary designation and my client did not receive any of his life insurance.
Estate planning for blended families is often complex. And it is a topic you may need to revisit every 5-10 years as your children mature. I am particularly aware of these issues, as I am part of a blended family myself. And I can attest to the fact that there are many emotional and psychological issues that are part and parcel of blended families. And without a proper estate plan in place, those emotions can easily boil over when there is a death in the family and financial security is at stake. Even in families where there appears to be harmony, a death of a patriarch or matriarch can trigger new behavior and reveal repressed emotions.
Simply put, money changes everything.
To provide for the best protection of your spouse and children, it is important to start thoughtful and meticulous planning. The goal is to nurture your new blended family now and ensure they are taken care of after you’re gone.
An effective estate plan for a blended family should:
- Disinherit your ex-spouse to the extent that you wish to do so;
- Protect your own children;
- Provide for your new spouse;
- Reduce conflict as much as possible; and
- Minimize estate taxes.
If you don’t actively remove an ex as the named beneficiary or joint owner with right of survivorship, he or she could legally inherit your house, your Employee Retirement Income Security Act (ERISA) plan, your life insurance payout, even your bank account balances. This could occur even if you specified otherwise in your will and even if the laws of your state automatically extinguish your ex’s interests in the assets of your estate. This is why I insist on seeing all the beneficiary designations on retirement assets, life insurance, and other accounts. I have seen too many cases where the beneficiary designations were “wrong,” but nothing could be done about them.
Even more troubling, unless you take the proper legal steps, your former spouse would likely be named by a probate court to manage the inheritance you leave your minor children.
If you haven’t already seen it, rent the recent Meryl Streep/Alec Baldwin movie “It’s Complicated.” The movie shows that relationships are complicated. It ought to inspire you to take steps to make sure your estate plan reflects your wishes and your current marital status. There is no “one size fits all” plan for blended families, but a good estate planning attorney can help you sort through your options and make sure your intentions toward your family are honored.