How to Avoid Giving Estate to Your Ex
There are exceptions in estate planning where you could unintentionally leave money to people you no longer intend to, much to the surprise of other heirs.
CNBC’s recent article “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes” says that the only exception where an ex-spouse could perhaps be on the receiving end of your money when you die, is if you neglect to change your beneficiaries under a retirement plan.
Louisiana law at Civil Code Article 1608(5) provides that if the person writing the will (the testator) is divorced from the legatee (aka the “heir”, in this case the ex-spouse), after the last will and testament is executed, the legacy is revoked by law unless the testator provides to the contrary. The same provision applies revoking appointments to specific positions under the will such as an executor.
However, because pensions are governed by federal law, formally known as ERISA or the Employee Retirement Income Security Act of 1974, these state rules don’t apply. In addition, beneficiary designations for life insurance are governed by the law of contract between the owner of the policy and the insurance company. So La. C.C. art. 1605(5) does not apply to insurance.
As a result, if you don’t update your beneficiary designations, your ex could still inherit the money.
In addition to pensions and life insurance, people tend to forget to update their IRA and 401(k) beneficiary designations.
Bank account payable on death (POD) designations can also create issues. If the ex-sposue is a payee on death, and your will has excluded your ex-sposue as a legatee (pursuant to La. C.C. art. 1505(5) or otherwise) and your ex-spouse receives the money from the account, your other heirs could sue your ex-spouse creating a litigation nightmare. Read my blog post covering this issue here: What Is a POD Account? A litigation time bomb.
Some people may decide to also include friends who feel like family in their wills. They are sometimes called “unnatural bequests” because they don’t include typical beneficiaries, such as a spouse and children. This type of bequest should be prepared by an experienced estate planning attorney with specific language to make it known it wasn’t an accident.
For example, “I leave my dear friend Big Red $1 million, even though that reduces my bequests to my children, because of the wonderful and supportive friendship I have had with Red for more than five decades.”
To make certain that your wishes are carried out the way you want them to be, enlist the help of an experienced estate planning attorney.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “How to Avoid Giving Estate to Your Ex” read these additional articles: What are the Added Benefits in the New Medicare Advantage Plans? and IRAs and 401(k) when Spouse Dies and Update on Transfer Taxes for 2022 and How to Check the Validity of a Will
Reference: CNBC (Jan. 9, 2022) “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes”