When someone passes away, your estate plan, which includes your wills and trusts, will determine who will inherit your assets. If, in your trust, you had named beneficiaries to your assets, then the named assets will automatically pass on to them. Depending on the situation of the case, there may be various answers as to what can happen to your remaining assets after you die. Here are some scenarios:
Q: What happens if I die without a will, and I am divorced?
A: Dying without a will is known as intestacy. Your property will be distributed depending on the state laws of intestate succession and your marital status. If you have children but you are divorced, your children would be the first to inherit your assets. However, if they are minors, then it is likely that your ex-spouse, if living, will become the conservator and guardian for your children. They will gain control over your children and their inherited assets. Dying without a will puts your assets at risk of who you want it to be distributed to because intestacy laws will determine how your assets will be distributed.
Q: My husband of 20 years passed away. His estate is going through probate now. Can his ex-wife be entitled to something? She now claims that she owns all the assets in his IRAs and 401K, totaling $2,000,000. Is this legal?
A: Yes. Many people do simple wills before their death and do not seek advice of a professional estate planning attorney. As a result, they forget about such important assets in their estate — IRAs, 401K(s) and other retirement accounts. If your husband had listed his ex-wife as his beneficiary to his retirement accounts, and left it unchanged without drafting a new will or updating the beneficiary form, then it is legal for her to own his assets.
Independent of your intentions, such as wanting your assets to be distributed to your wife and children, custodians of retirement accounts must follow the directions of the beneficiary designation form – even if that means that $2 million of the assets legally go to an ex-wife from 20 years ago.
Q: How do I know if my will is out-of-date and when should I update it?
A: Dying with an out-of-date will is just as complicated as dying without a will. You should always review and update your will because the laws of the state may change, and your circumstances may change over time. For example, if your assets will change over time, then it can affect your will if you do not update it. Likewise, if you have sold or donated an asset that was meant to be inherited by your beneficiary, then you should update it because you will no longer own the asset at the time of your death. In other personal circumstance such as divorce, it is important to revoke an old will regarding your ex-spouse, and prepare a new one to avoid circumstances in which your ex-spouse claims ownership of your assets corresponding to your previous will. Your will should ensure that everything is up to date, especially after life-changing events, so that your children will be financially supported, and your assets will be distributed accordingly.
Q: What should I do to make sure the correct beneficiaries inherit all of my estate?
A: Consult with an estate planning attorney prior to divorce, marriage, birth of a child and other important life changing event. Many divorce attorneys do not draft separation or divorce documents properly often forgetting about very important assets that by law belong to your current spouse. Such assets are your IRAs, 401(k)s, pension plan accounts and others. If you want to change your IRA beneficiaries, contact the insurance or financial company for a change of beneficiary form. And if you want to change your 401(k) account beneficiaries, usually after divorce, then you will have to ask for the paperwork from your HR department at work. If you designate someone other than your spouse to inherit such assets, you need your spouse’s permission! If you get divorced from that spouse, you must properly remove such spouse from those assets so that your assets will not fall into the hands of someone you did not intend.
Lastly, the most important advice any good attorney can give you – prepare a will, even if it is as basic as naming a beneficiary, and make sure to review your estate plan, including your beneficiary designations, annually and during important changes in your life to prevent conflicts in the future. Don’t forget to let a professional handle your estate planning needs so that you do not end up in a undesired situation.