In any comprehensive estate plan, a letter of instruction (LOI) is an important component. An…
The Impact of Divorce on Estate Planning
** This article has been revised from its original version which was published on January 20, 2021.
New York’s “revocation on death” statute (New York Estates Powers & Trusts Law §5-1.4 ) states that without the express terms of a governing document (e.g., a Last Will and Testament, Trust, Durable Power of Attorney, Health Care Proxy, Security Registration, or Beneficiary Designation), a divorce, judicial separation, or annulment of a marriage rescinds any revocable “disposition or appointment of property made by a divorced individual to, or for the benefit of, the former spouse.”
This includes, but is not limited to:
- A disposition or appointment by will using the beneficiary form (TOD-Transfer on Death)
- Beneficiary designations in a life insurance policy or (to the extent permitted by law) in a pension or retirement benefits plan
- A revocable trust, including a bank account in trust form
- Provisions conferring a power of appointment or power of disposition on the former spouse
- Nomination of the former spouse to serve in any fiduciary or representative capacity, including as a personal representative, executor, trustee, conservator, guardian, agent, or attorney-in-fact
The Revocation on Death Statute
This statute provides that governing documents revoke property as if the former spouse had predeceased the divorced individual. The statute severs the interests of the divorced individual and the former spouse at the time of the divorce, judicial separation, or annulment by transferring joint tenants with the right of survivorship to tenants in common. However, this provision doesn’t modify New York case law which holds that a divorce converts tenancy by the entirety to tenants in common.
What Does All of This Mean?
Your estate plan and beneficiary designations must be reviewed and updated by an estate planning attorney upon a divorce, judicial separation, or annulment. You can’t rely solely on the provisions of New York’s “revocation on death” statute to revise your estate plan. Doing so could lead to unintended and unwanted results.
Reasons to revisit your estate plan and beneficiary designations upon a divorce, judicial separation, or annulment include:
- Language in legal documents which saves the disposition to the former spouse.
- A designation to the default beneficiary due to the automatic revocation could result in adverse income tax consequences for tax-deferred retirement assets.
- Without beneficiary designations, assets are subject to probate.
- Retirement plans governed by the federal Employee Retirement Income Security Act of 1974 (“ERISA”), including most defined contribution and defined benefit plans such as 401(k) plans, ERISA preempt a “revocation on death” statute. A former spouse won’t be automatically revoked as the beneficiary.
- Changes to the governing instruments may be necessary to address beneficiary and fiduciary appointments resulting from the automatic revocations.
- Although dispositions to the former spouse and fiduciary nominations of the former spouse are automatically revoked, this revocation doesn’t extend to the former spouse’s relatives. For example, the Last Will and Testament, Trust, or beneficiary designations of the divorced individual may provide for the children or siblings of the former spouse or their nominations as fiduciaries.
- If the former spouse is still intended to remain as the beneficiary of a life insurance policy (for example, due to a court decision or settlement agreement) the automatic application of a revocation on death statute must be addressed and overridden by completing a new or updated beneficiary designation, post-divorce, to name the former spouse as the beneficiary.
- A court decision or settlement agreement may contain a provision requiring the divorced individual’s estate plan to provide for the former spouse in some way (for example, a former spouse receiving a lump sum payment upon the passing of the divorced individual to account for the loss of maintenance or support). If the divorced individual’s estate plan is not updated to reflect the payment, the court decision or settlement agreement is violated, and the estate may be subject to litigation by the former spouse.
An estate attorney in New York can explain the nuances of this statute, estate law, and how divorce can impact your estate.
Important to Note
New York’s revocation on death statute only applies upon a divorce, judicial separation, or annulment of a marriage. Therefore, if a spouse, the “soon to be” divorced individual, dies during divorce, judicial separation, or annulment proceedings, the provisions of the estate planning documents providing for or appointing the “soon to be” former spouse as fiduciary will still be effective. Also, as a surviving spouse, the “soon to be” former spouse retains the statutory Right of Election to claim their share, as well as the right to inherit via intestacy if there is no Last Will and Testament. Complex laws require the expertise of an estate attorney in New York.
If you are facing a divorce, judicial separation, or annulment, it’s critical to revisit your estate plan to ensure that it expresses your wishes and is in compliance with the terms and provisions of your court decision or settlement agreement. Contact the estate planning attorneys at Russo Law Group, P.C for professional services and advice regarding your overall estate plan pre- and post-divorce.
We invite you to take advantage of our comprehensive website as well as our free seminars and webinars to learn more about how Russo Law Group, P.C. can help provide you with peace of mind. Call to schedule a consultation at 1 (800) 680-1717.
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