Post-Divorce Estate Planning: Important Terms To Know

Estate planning is the process of organizing how your assets—like your money, property, and belongings—will be managed and distributed after you pass away or if you become unable to make decisions for yourself. If you are not familiar with your estate plan or haven’t reviewed it recently, you are not alone. Many families execute documents and there is no need to change them for years.

As you finalize your divorce and your family dynamics evolve, it is important to take time to revisit your plan to ensure your loved ones are taken care of according to your preferences. Your former spouse is likely named throughout your existing plan, so it is imperative to review your documents, account titling, and beneficiaries, and make changes if you no longer want them involved.

For many, estate planning conversations can be confusing and full of legal jargon. Below is a list of common estate planning terms and their definition to help you navigate these discussions.

Key Roles

1. Beneficiary: A person or entity that is named as the inheritor of an asset if the owner dies. Retirement accounts, annuities, and life insurance are common assets that have beneficiaries to review post-divorce. Assets with a beneficiary designation will pass to the named beneficiary regardless of what your other document stipulate. If your desired beneficiary is still a minor, consult your attorney and financial advisor to determine an appropriate solution.
2. Executor (sometimes referred to as a Personal Representative): A person you appoint who is responsible for carrying out the legal and financial wishes outlined in your Last Will and Testament.
3. Grantor: A person who creates or contributes property to a trust. Depending on the type of Trust, the Grantor and the Trustee might be the same person.
4. Trustee: A person or institution that is responsible for handling any property or assets held in a Trust. They follow rules set out in the trust document and must act in the best interests of the beneficiaries of the trust. When revising your documents, you will want to think about Successor Trustees in case you or your primary trustee is unable to act.

Documents

1. Advance Healthcare Directive (sometimes referred to as: Living Will): A legal document detailing your wishes for end-of-life healthcare. It typically specifies what kinds of medical interventions you do or do not want, such as life support, resuscitation, or other life-sustaining measures.
2. Last Will and Testament or “Will:” A legal document that contains the wishes of a person when they pass away. A Pour-Over Will is a type of will often used in conjunction with a Living Trust that states any assets not specific to a beneficiary will become part of the Trust when the Grantor passes away. If you die without a will (Intestate), state laws determine how your assets will be distributed.
3. Powers of Attorney: A legal document that lets you designate another person (Agent) to act on your behalf regarding specific decisions when you are incapacitated & can no longer make decisions on your own. There are two types of Powers of Attorney – Property: meaning financial decisions, and Health Care. As you name your agents, it is important to consider your relationship with the individual, their financial or medical acumen, and their physical proximity in case an emergency arises.
4. Trust: A legal document that outlines how a person’s assets should be managed and distributed. The document specifies who the trustee is, who the beneficiaries are, and the rules for how the assets should be used or given out. Unlike a Will, which only designates the assets at death, a Trust provides control both while the person is alive and after they pass away. Two common types of Trust are a Revocable or Living Trust: trust that can be changed or terminated during the Grantor’s lifetime and an Irrevocable Trust: A type of trust that cannot be terminated, revoked, or amended by the grantor. Consult your attorney and your financial advisor to determine if either type of trust is appropriate in your situation.

General Terms

1. Estate Tax Exemption (sometimes referred to as: Applicable Exclusion Amount, Unified Credit Amount, and Credit Shelter Amount): Amount of assets someone can transfer at death or gift during their lifetime that is excluded from federal estate and gift taxes. Depending on your state of residency, you might be subject to state estate taxes as well as federal. Your attorney and financial advisor can evaluate your estate tax exposure, if any, and discuss potential actions to manage these taxes.
2. Probate: A court supervised process that occurs after someone passes away. It determines whether a Will is valid and supervises the Executor in carrying out the legal and financial wishes. This is generally a public process and can vary in length and complexity. Trusts do not go through probate so they can provide more privacy and control throughout estate settlement.

Going into estate planning discussion with a foundational understanding of the terms can make the process less overwhelming and more productive.

How will you plan to navigate your estate plan as you create your next chapter?