In this episode: Once the divorce is final, your accounts and estate documents may still name your former spouse. Jon Peyton walks through what to update right away, why a trust can matter, and how to protect children who are still minors.
Key insights
- Until you update them, your accounts and documents may still send your assets to your former spouse.
- Update the beneficiaries on bank accounts (payable on death), investment accounts (transfer on death), IRAs and 401(k)s.
- The core documents are powers of attorney, a will and an advance medical directive, or living will. A trust and a letter of intent may also fit.
- A trust can control how heirs receive money, help protect it from creditors and keep your estate private.
- With minor children, decide who will manage their inheritance. Otherwise a court may appoint someone, possibly your former spouse.
Episode timeline
- 0:00 Introduction
- 0:31 Why estate planning comes next
- 1:40 What estate planning is
- 2:24 Beneficiaries come first
- 2:44 Bank accounts: payable on death
- 3:35 Investment accounts: transfer on death
- 4:20 IRAs and 401(k)s
- 4:45 Powers of attorney
- 6:00 Your will
- 6:25 The advance medical directive or living will
- 9:15 Why a trust
- 10:20 Keeping your estate private
- 12:40 The letter of intent
- 14:25 Protecting minor children
The episode in brief
Signed, sealed and delivered. Once the divorce is final, estate planning comes next. Until now, most of what you owned was probably set to go to your spouse if you died. If something happened on the way home from court, you likely wouldn’t want your half of the estate going to your former spouse. You may want it to go to your children, or to your parents, siblings or others.
What estate planning is. It’s how you tell the world what you want when you can’t speak for yourself: who makes medical and financial decisions if you’re incapacitated, and who receives your assets when you die.
Beneficiaries first. Start with your accounts. At your bank, fill out a payable on death (POD) form for checking, savings and CDs. In most states, those accounts then pass directly to the named beneficiary without going through probate. At your investment firm, a transfer on death (TOD) form does the same. Then update the beneficiaries on your IRAs and 401(k)s.
Powers of attorney. A power of attorney names who acts for you if you’re incapacitated, after a car accident, for example. You might have separate medical and financial powers of attorney, or one combined durable power of attorney. There are other types, such as springing powers of attorney, so ask your attorney which fits.
Your will. It says where your estate goes: your children, your parents, your church or anyone else.
The advance medical directive. Also called a living will, it tells doctors and your agent which life-saving measures you want, for how long, and which you don’t. It can also cover burial or cremation and organ donation. Writing it down spares your loved ones from having to make those decisions on their own.
Trusts. Depending on your estate, a trust may make sense. It can carry out your wishes after you’re gone, for example by paying heirs a set amount each year so they don’t spend it all at once. It can help protect assets from creditors. A third-party trustee adds an arm’s-length layer so a beneficiary can’t simply cash out. A trust can also keep your estate private. With a will, your executor inventories what you owned in your own name for the court. Assets owned by a trust generally aren’t part of that inventory, so the public doesn’t see what your estate held. Rules vary by state; Virginia, for example, has a simpler process for small estates.
A letter of intent. This isn’t a legal document. It’s a personal message: how you’d like to be cared for at the end, words for the people you love, even the band you’d like at your funeral.
If you have minor children. Think about who will manage what you leave them. If your former spouse isn’t the right person, address it in your custody agreement or your estate documents, for example by naming a trustee. Without that, assets left to minors may be placed under a court-appointed conservator, and a court may choose the other parent.
Go straight to your estate attorney. Jon’s advice is simple: when you leave your divorce attorney’s office, head almost immediately to your estate planning attorney’s office.
Key action items
- Update the POD and TOD beneficiaries at every bank and investment firm.
- Change the beneficiaries on your IRAs and 401(k)s.
- Meet with an estate planning attorney to update your powers of attorney, will and advance medical directive.
- Ask whether a trust fits your situation, especially if you have minor children.
- Decide who should manage your children’s inheritance, and put it in writing.
Listen next: Episode 17: Now It’s Time to Plan for Your Future
This episode is educational and isn’t legal, tax or financial advice. Speak with your own attorney and advisers about your situation.