What happens to assets with designated beneficiaries after a divorce? The answer, in many cases, is nothing. Unfortunately, this is a common problem area in estate planning.
After a divorce, an individual may update his will to change bequests, but those statements generally affect only probate assets. Retirement or life insurance accounts are non-probate assets outside the domain of a will. As such, they used to operate under existing beneficiary designations, even if that means the proceeds will go to an outdated beneficiary, like a former spouse.
However, Florida legislators have taken some action to avoid the injustice that can result from this easy estate-planning oversight. Pursuant to a 2012 state law, certain beneficiary designations are voided when a marriage is terminated by divorce or annulment. Notably, the law applies to insurance policies, IRAs, payable-on-death accounts, employee benefit plans, and qualified annuities.
However, the law is not an absolute safety net. It contains many exceptions, which is a good reason why individuals going through a divorce should also reach out to an estate-planning attorney. For example, the state law cannot void a beneficiary designation if it would conflict with federal law. Certain designations to a former spouse might also be irrevocable. Designations involving co-owners with right of survivorship might also require the adjudication of a court before the law could apply.
The goal of estate planning is a smooth and well-executed transfer of assets to loved ones. It can also help an individual plan for the unexpected, such as incapacity and the need for others to help with medical decision-making. The 2012 Florida state law may help avoid some injustices, but a proactive approach to estate planning remains the best strategy for ensuring an individual’s intentions are carried out.
Source: The Ledger, “Plan Ahead on Estate to Avoid Probate,” Kevin Albaum, May 20, 2015