by Sheryll Bonilla, Esq.
Most couples who prepare their wills or trusts, name their spouse as the personal representative or trustee for their property and also leave property to the spouse.
After the emotional exhaustion, the moving out and living elsewhere, the practical adjustments to being single again, and the financial impact of the divorce, people understandably just want to forget about it for quite a while. There’s still one more thing to do when they’re ready – update their estate planning documents.
The divorce breaks arrangements and instructions in these documents. The ex-spouse is no longer authorized to act for the other ex-spouse or receive gifts in the will or trust. That striking of an ex-spouse, though, does not apply to the ex’s family.
If you appointed your in-law, he or she is still authorized to act. Or it could be that you named your in-law to act as successor trustee or agent under power of attorney, and your sibling gets divorced.
That in-law is no longer part of the family and may not want to act on your behalf. Or the former in-law may be so mad at you for what you did, that sure, they’ll act but your heirs won’t like how long they take to do it or how much they charge for helping carry out your plans.
For gifts in your will or trust, after the divorce, all inheritance to the ex-spouse is also struck, and the property is conveyed as if the ex-spouse died first.
The property then goes to the contingent beneficiaries named or, if none, then to whoever inherits under the intestacy statutes – that is, if a person died without a will or trust.
While a divorce negates any provisions for your ex-spouse, any gifts to that ex-spouse’s family are still intact.
If your will says that “if my wife dies, all my property goes to her sister”, then you get divorced, all your property will go to your former sister-in-law unless you change your will.
If you provided for your stepchildren in your will or trust, do you still want them to have some of your property, or would you rather now just leave it all to your kids? That’s not a blanket statement, though.
Some stepchildren may be more willing to take care of a stepparent than natural children are, so it would be kinder to take care of them if they are the ones taking care of you in your old age.
Divorced persons should give time to consider who they want to handle things or make decisions for them and update their documents.
Have your children now become old enough to take over those tasks of managing and distributing your assets, or telling the hospital whether to take you off life support? Even if they are old enough, can they afford to, either time-wise or financially?
Your children may be in college and just don’t know how to deal with your mortgage lender or have young children who need their time.
Think about your available family (or friends) who are responsible and financially able to carry out your estate plan. If you have only a will and not a trust, the person you nominated as personal representative has to take your will to court to be probated.
An uncontested probate – around town on Oahu – typically runs about $4000 in legal fees plus another $1000 for newspaper publication, court fees, and service of process costs.
The personal representative will usually be reimbursed by court order, but do they have the money now to front the expenses of probate? If you name your adult children, do they have $5000 to do the probate or will you leave $5000 in a bank account they have access to so they can carry it out?
The personal representative is also allowed compensation for all the work they did, to be paid out of the assets you leave behind, as well as reimbursement for all the costs they fronted.
For example, he or she may pay your mortgage until the home is sold for the property division. Don’t assume your children will pay the mortgage or chip in for it. The personal representative might have to do this and will get paid back for monies he or she spent in acting in that role.
If you have a trust, does the successor trustee have the funds to pay for the deeds distributing your real estate?
You may have left your bank accounts to your children under pay-on-death beneficiary instructions with the bank and given the tasks of conveying the house to your successor trustee.
Some children will understand the need to fork over the costs of preparing and recording the deed, but some may have already spent the money on paying their bills or buying a new car.
There are some successor trustees who haven’t carried out the instructions in a trust because they don’t want to (understandably) front their own money to implement your wishes in case your beneficiaries don’t pay them back.
Most trusts have a trustee compensation provision that allows a trustee to receive “reasonable compensation” for the work they do in carrying out your estate plan. The trustee then shows the court what work they had to do and the amount they feel is reasonable for all the time and effort they made.
Without a provision, the court can decide a trustee’s compensation under Hawaii Revised Statute § 607-18. It’s a generous statute.
The trustee – just for accepting the duties of successor trustee – gets 1% of the total value of the estate, half a percent each year for managing your assets, and another 1% when final distribution is made.
Remember, the trustee has to file estate tax returns and keep accountings that are given to the beneficiaries, so being a trustee is not necessarily a simple job. Payment may be in order.
You may have left property to your in-laws because the relationship was warm and friendly during the marriage. The family may still treat you nicely and regard you as family even after the divorce, or they may cut you off completely.
You now have to think of the gifts you left to them in your will or trust and decide whether to give this property to someone else or let them still have it.
Estate planning documents typically include the will, power of attorney, and advance directive, or a trust and pour over will (a different type of will that goes with a trust).
The other spouse is usually designated as the agent under the power of attorney and advance directive; as successor trustee under the trust; and as personal representative under the will (either type – no trust or with trust).
It is a good idea to revoke your power of attorney if your ex-spouse is named as your agent. Get a new one prepared that specifically revokes all prior powers of attorney. Then, send a copy, just a copy, of the new POA to all your banks and financial institutions, anywhere you have money, to show your current POA.
If you sent the old POA to your retirement plan or life insurance company to show that your spouse has authority to act for you, then send the new one there, so they know there’s no longer any authority.
For the advance directive, get a new one that revokes the old one, and give a copy of the new one to your doctor. For those of you who have old separate documents (living will, HIPAA authorization, and medical power of attorney), replace these with a new advance directive, which is an all-in-one type document. It’s easier and safer because all authorizations are in one piece of paper.
Updating your estate planning documents is one more thing to think about after a divorce. Think about the new arrangements in light of what property you were left with in the decree and who you can count on now that your ex-spouse is no longer in the picture.
This article is for informational purposes only and is not to be constructed as offering legal advice. Please consult an attorney for your individual situation. The author is not responsible for a reader’s reliance on the information contained here.
by Sheryll Bonilla, Esq.