Effect Of A Divorce On Your Estate Plan?

A divorce or annulment is one of those important “life events” that makes it absolutely imperative that you review your entire estate plan, and that you do so in light of any obligations you may have incurred under the Divorce Decree and any Property Settlement Agreement.

Illinois law specifies that a divorce or annulment will automatically revoke provisions that you have previously made for your former spouse in some portions of your estate plan. We have summarized the Illinois law below.

However, there are certain items that will remain in effect unless you are pro-active and take the necessary affirmative steps to remove your former spouse:

If You Have Named Your Former Spouse As A Beneficiary. If you have named your former spouse as a beneficiary under any life insurance policies you own, or, as is customary, under any of your IRAs or Retirement Plans, or under any Deferred Compensation, Salary Continuation, Consulting, or other similar types of Agreements, your former spouse will continue to be a beneficiary even after the divorce or annulment.

Even if the Divorce Decree or Property Settlement Agreement includes a provision stating that your former spouse will no longer be a beneficiary of certain assets, we recommended that you not simply rely upon such a provision.

Rather, in the above instances, we recommend that you actually sign and process a new Beneficiary Designation form, or amend any Deferred Compensation, Salary Continuation, Consulting, or other similar types of Agreements. In that way, you can be absolutely sure that your former spouse will be effectively removed as a beneficiary, and that there will be no future “complications”, such as having to interpret the terms of the Divorce Decree or Property Settlement Agreement.

However, even if you remove your former spouse as a beneficiary, or as a Trustee, Executor, or Agent, it is important that you also consider who the replacement beneficiary or beneficiaries, and the replacement fiduciary or fiduciaries, will be. A review of your entire estate plan can assist you in identifying one or more replacements, and ensuring that such replacements are coordinated with your overall estate plan.

If You Have Named Members of Your Former Spouse’s Family in Your Estate Plan. You may have named members of your spouse’s family to act as a Guardian for minor children, or as a Trustee, Executor, or Agent under a Power of Attorney. Or, you may even have named one or more members of your spouse’s family as beneficiaries, or as contingent beneficiaries.

Illinois law does not automatically revoke any such provisions with respect to members of your spouse’s family.

Accordingly, it is important to review your entire estate plan and then make whatever changes are appropriate, or that may be required by the provisions of the Divorce Decree or any Property Settlement Agreement.

Summary of Existing Illinois Law:

However, in the event of a divorce or annulment, Illinois law does include the following provisions relating to a former spouse:

Wills Signed Before the Judgement of Divorce or Annulment. In the event of a divorce or annulment, the following provisions in your Will are automatically revoked:

Any gift or bequest you have provided for your former spouse;

Any power of appointment you have given your former spouse; and

Any nomination of your former spouse as a fiduciary—i.e., as an Executor or Trustee.

With respect to the above items, your Will continues in full force and effect in the same manner as if your former spouse died before you.

Revocable Living Trusts (including Amendments) Signed Before the Judgement of Divorce or Annulment. In the event of a divorce or annulment, the following provisions in your Revocable Living Trust, including any Amendments, are automatically revoked:

Any gift or bequest you have provided for your former spouse;

Any power of appointment you have given your former spouse; and

Any nomination of your former spouse as a fiduciary—i.e., as a Trustee, or as a Trust Protector, but perhaps only if the Trust Protector is considered to be a fiduciary.

With respect to the above items, your Revocable Living Trust continues in full force and effect in the same manner as if your former spouse had died on the date of the judgment for divorce or annulment.

However, the above provisions relating to Revocable Living Trusts do not apply to the following:

1. Voting Trust;
2. Security instrument such as a mortgage or trust deed;
3. Liquidation trust;
4. Escrow;
5. Instrument under which a nominee, custodian for property, or paying or receiving agent, is appointed.
6. A Totten Trust Account. Note: A Totten Trust account is essentially a POD (“Payable On Death”) account you may have established at a bank or savings institution. Such an account might, for example, be titled in your name alone, but also name your former spouse to be the beneficiary of the account upon your death. Under Illinois law, the provision naming your former spouse as beneficiary is not impacted by your divorce or annulment. As a result, the only way to remove your former spouse as a beneficiary of this type of account is to sign a new signature card at the bank or savings institution. By the way, if you have signed a Revocable Living Trust, it normally makes much better sense to have the account titled in your Living Trust, rather than to name one or more beneficiaries on the signature card at the bank or savings institution!
7. A Land Trust. This is a Trust that only holds title to one or more parcels of real estate. Although the Trustee of the Land Trust is the title-holder, the beneficiaries of the Land Trust are, for example, you and your former spouse. If that is the case, it is necessary that you and your former spouse either terminate the Land Trust, or amend it to indicate who the new beneficiaries of the Land Trust will be. In many instances, the Divorce Decree or Property Settlement Agreement will require that certain actions be taken by you and your former spouse.

Powers of Attorney Signed Before the Judgement of Divorce or Annulment. A former spouse you have named as an Agent under a Power of Attorney for Property, and under a Power of Attorney for Health Care, is deemed to have died on the date of the Judgement of Divorce or Annulment.

Although the former spouse is effectively removed, the first backup Agent named after your former spouse is now automatically promoted into the “place” formerly occupied by your former spouse. Is that what you want?

However, you may also have included provisions in your Power of Attorney for Property that allow your Agent to make gifts to your former spouse, or to name your former spouse as a beneficiary of IRAs and other Retirement Plans, or to provide for your former spouse in some other manner.

That is another reason that it makes sense to review your entire estate plan to ensure that it now includes the provisions that you believe are most appropriate.