Estate planning is making preparations for the transfer of a person’s wealth and assets after his or her death. Typically, this is done by setting up a will or a trust. People set up estate plans to benefit their loved ones especially their husbands and wives. But, what happens to wills and/or trusts during and after a divorce?
More than just being the beneficiary of an estate plan, a husband and wife are often co-creators of estate plans. A spouse will often be the executor of the other spouse’s estate. An executor is the person who gathers the deceased’s assets and distributes it according the trust or will.
When a divorce occurs, what happens to the spouse beneficiary or the spouse executor?
A Will Remains In Effect Until You Are Divorced
Illinois’s trust and estates law doesn’t acknowledge a period between the filing of a petition for dissolution of marriage (separation) and divorce. A will or trust will treats your spouse as your spouse until you are divorced. This means the spouse will remain both the beneficiary of your will and even possibly the executor of your will until a divorce decree is entered.
So, if you’re getting divorced you can speed up your divorce by getting a bifurcated divorce, a divorce where you deal with the details later and just get the actual decree immediately. Or, more commonly, you update your will to remove your spouse.
Even if you modify your will before your divorce is entered your spouse is entitled to take an elective share of your estate regardless of whether your will is drafted to include your spouse or not. If you disinherit your spouse from your will, your spouse has the option to renounce the will and take one-half of your estate (or one-third if you have children) pursuant to Illinois law.
Even more frightening, your spouse can remain your agent under a power of attorney for property or health care should you lose consciousness during the pending divorce proceedings.
What Happens To A Will After A Divorce?
The Illinois statute has a very wordy way of saying that a will remains in effect as to the ex-husband or ex-wife except that the ex-spouse cannot be an executor or have anything to do with the process of distributing the assets of the deceased.
“No will or any part thereof is revoked by any change in the circumstances, condition or marital status of the testator, except that dissolution of marriage or declaration of invalidity of the marriage of the testator revokes every legacy or interest or power of appointment given to or nomination to fiduciary office of the testator’s former spouse in a will executed before the entry of the judgment of dissolution of marriage or declaration of invalidity of marriage and the will takes effect in the same manner as if the former spouse had died before the testator.” 755 ILCS 4-7(b)
The ex-spouse still gets assets if they are left in the will after the divorce. After all, there may be very good reasons to award an ex-spouse assets in a will. Your ex-spouse may be caring for your children or you may still feel fondly for your ex-spouse.
This is why you must always modify your last will and testament after a divorce.
Some Accounts Have Special Rules Vis-à-vis Beneficiaries That Trump A Will
401(k) plans, pensions, IRAs and annuities have directed beneficiaries meaning that they are transferred right to the designated individual immediately upon the death of the owner without adherence to the terms of a will or trust. Married couples almost always designate their spouse as the beneficiary to these accounts.
So, no matter what a will says, if you designated your husband or wife as the beneficiary to one of these accounts, they will get these accounts upon your death.
Even after divorce, your ex-spouse remains the beneficiary to these accounts no matter what your local state says (because these accounts are governed by federal law)
Trust Property can be Marital Property
Single people often establish revocable trusts but married people can, too. A revocable trust where your spouse is the beneficiary of that trust that does not turn the property in that trust into “marital property” because the beneficiary does not own the property in the trust.
Most married couples prefer to create a “marital trust” where each member is a trust creators, co-trustees, and a beneficiaries of the marital trust. In a marital trust each member of the couple deposits items into the trust or retitles non-marital assets in the name of the trust to keep their estate plan effective and up to date. Putting property into a marital trust is already a leap of faith and loyalty in that you title the property in both of your names. But under divorce law, a marital trust turns all non-marital property into marital property.
A trust where one spouse is a beneficiary may not be touched in a divorce. A trust is not owned by the beneficiary because the beneficiary does not control the money…they only receive it.
A trust’s assets are usually distributed in the form of payments which divorce law considers income.
In Illinois, child support looks at gross income and the statute specifically states that “’gross income’ means the total of all income from all sources.” 750 ILCS 5/505(a)(2)(C)
For the purposes of maintenance, formerly known as alimony, Illinois law also considers “all sources of public and private income” 750 ILCS 504(a)(10)
Even marital assets get distributed with the court considering “the reasonable opportunity of each spouse for future acquisition of capital assets and income” 750 ILCS 503(d)(11) which sure includes trust income.
To learn more about how wills and trusts can be effected by a divorce contact my Chicago, Illinois law office. To draw up or review your will or trust either before or after divorce contact Cameron Lythberg