Estate Planning After Divorce – Who Handles The Money?

If I am divorced and I pass away, does my child’s other parent automatically get any money I leave to my children?

This is a common question from my clients, and something that often holds people up from making a plan.  The simple answer is: not necessarily.  The more complete answer is below.

1. Check the Divorce Agreement. The first thing to do is check your divorce agreement or parenting plan. Often there will be instructions in there about any money you may be required to leave the other parent, in the form of life insurance or other provisions.  There may be a requirement that one or both parents fund a trust for the child.  If you aren’t sure what the terms mean, you should check with your divorce attorney and definitely bring the agreement to the meeting with the estate planning attorney.
2. DIY Estate Planning.   What I often see people doing is naming their minor child as the beneficiary of their life insurance policy or retirement accounts, as a form of do-it-yourself estate planning.  They mean well and figure that their child will be provided for with this money.  What they may not understand is that a minor child cannot inherit outright and a conservator will need to be appointed by the Court to handle the money until the child turns 18.  Most often, the surviving parent will be appointed the conservator and have full control over the money.  And the child will have full access to the funds the day they turn 18.  If either one of these things does not appeal to you, you need to go a step further.
   The other way that people often attempt to do their own estate planning is to name a sibling or parent as the beneficiary of these policies with an informal agreement to use the money to care for the child. This carries its own risks because the funds could be open to claims against the sibling by creditors, could get mixed into a sibling’s divorce, or could be at risk if a parent is on Medicaid or other public benefits.
3. Estate Planning On Your Terms. The best way to insure that your wishes are honored even after you have passed away is make a legal agreement with someone you trust to handle the funds for your child in the way you instruct them to and to set the ages at which your child will be able to access the funds themselves.  Your estate planning attorney can help you decide the best option in your situation and according to your budget – whether it’s a fully funded revocable trust, a testamentary trust or some other method.

The key is to not let your concerns hold you back from putting a plan in place.  Your attorney should walk you through all the options and answer all your questions before the documents are finalized.  Then you can rest assured that your child’s inheritance will be managed by the people of your choosing according to your instructions.

________
Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.