estate planning

Exes, Stepchildren and Your Will: A Cautionary Tale

Don’t be like Bob. After his divorce, he failed to update his estate plan, which listed his stepdaughter as a beneficiary.

More than half of marriages in the U.S. end in divorce, and for most, it is one of the most horrendous experiences of their lives. So, when the lawyer delivers the final divorce papers, the last thing on the mind of either former spouse is updating their estate plan. However, failure to do so could result in a real “mess.”

What Happens When an Estate Plan Fails to Be Updated

Bob and Mary got married in 1993.  Mary had one daughter, Jane, from a prior marriage. Even though Bob never officially adopted Jane, he treated Jane as if she were his daughter throughout the entire marriage. The joint trust referred to Jane as “the only living child of the settlors” and named her as the residuary beneficiary.  These terms have significant meaning under the law, and the failure to take that into consideration following a divorce can present a real problem.

Bob and Mary divorced in April of 2019, and Bob passed away a couple of months later. As is often the case when a couple gets divorced, they did not update their estate planning documents to reflect their change in marital status. Did Bob still want Jane to inherit after the divorce? We’ll never know, but his estate plan speaks for itself. He may have only wanted Jane to benefit if he remained married to Mary.   

Following Bob’s death, Mary acknowledged she was no longer a beneficiary of the joint trust under California law (see discussion below) because of the divorce. Nevertheless, Jane filed a lawsuit, arguing that the divorce did not revoke Bob’s bequest to her. Stepchildren often don’t view divorcing spouses as an end to their relationship with the stepparent, especially emotionally, but the law is mixed on its views, as we’ll see below.

Legal Precedents for Exes and Bequests

In California, as with many states, once a divorce judgment is entered by the court, certain bequests and nominations relating to the surviving spouse are automatically revoked. For example, CA Probate Code §5040 provides that certain non-probate transfers (e.g., via revocable living trusts, individual retirement accounts (IRAs) and other retirement vehicles, such as pensions and 401(k)s, transfer on death and pay on death designations executed before or during the marriage) are automatically revoked upon the entry of a divorce judgment. 

Notably, life insurance policy and irrevocable trust beneficiary designations are not automatically revoked. 

The CA Probate Code is silent about whether gifts to stepchildren are voided by a divorce when the document was executed prior to the divorce. But California case law offers guidance regarding how gifts to former stepchildren are treated:

  • In Estate of Hermon, the Court of Appeals stated that “when a testator provides for his spouse’s children, he normally intends to exclude children of an ex-spouse after dissolution, unless a contrary intention is indicated elsewhere in his will.” 
  • And in Estate of Jones, the Court of Appeals expanded the foregoing rule, stating that the court could look beyond the instrument for evidence of the deceased former stepparent’s ongoing relationship with the child following the divorce to determine if the deceased former stepparent would likely have wanted the gift to go to the child.

As previously stated, just because the wife and husband legally divorce, it may not mean the emotional attachment or the stepparent’s relationship with the stepchild will end. Thus, if the estate planning documents aren’t amended to clarify whether the stepchild or stepchildren no longer inherit, it should not come as a surprise if the stepchild “lawyers up” and tries to get a piece of the action. If the estate is large enough, there are no shortages of estate litigation attorneys only too happy to take on a case like this for a percentage of the recovery.

Lessons to Take Away

If you are going through a divorce, updating your estate plan is probably the last thing you want to focus on – but it is crucial that you do so. While non-probate transfers to former spouses may be automatically terminated by statute in certain circumstances, keep in mind that these may still be legally challenged by the ex-spouse or the stepchild or stepchildren.  Additionally, non-probate transfers to former spouses via an irrevocable trust, such as the typical dynasty trust and the irrevocable life insurance trust (ILIT), are not automatically revoked in the event of divorce, unless the trust document explicitly states so. 

If your current estate plan makes bequests to children or other family members of your soon to be ex-spouse, you must revisit these documents and amend them either to revoke the gift, or to specifically state your intention to provide for them after divorce. Otherwise, at death your assets may be distributed in ways that you did not intend.

Note that every state has laws like California’s, and laws are constantly changing.  Thus, no matter where you reside, we recommend that you consult with your estate planning attorney to effectively protect yourself and the disposition of your property in the event of divorce. 

About the Author

Jeffrey M. Verdon, Esq.

Managing Partner, Jeffrey M. Verdon Law Group, LLP

Jeffrey M. Verdon, Esq. is the managing partner of the Jeffrey M. Verdon Law Group, LLP, a Trusts & Estates boutique law firm located in Newport Beach, Calif. With more than 30 years of experience in designing and implementing comprehensive estate planning and asset protection structures, the law firm serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives.

Most Popular

Should You Consider a Roth Conversion While the Market is Down?
Roth IRA Conversions

Should You Consider a Roth Conversion While the Market is Down?

Investors who are hurting right now as the stock market takes a hit may want to console themselves with a possible tax bargain created by a Roth conve…
May 16, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
10 Substantial Stock Splits to Put on Your Radar
stocks

10 Substantial Stock Splits to Put on Your Radar

Stock splits can provide a short-term boost for investors. Here are 10 of the most notable names splitting their shares this year.
May 13, 2022

Recommended

Hockey Star’s Viral Twitter Rant Targets Wealth Management
personal finance

Hockey Star’s Viral Twitter Rant Targets Wealth Management

NHL great Chris Pronger took to Twitter recently to critique athletes’ spending and investing, warn of predatory financial advisers and offer smart mo…
May 18, 2022
Are You Maximizing Your Tax-Exempt Bucket?
tax planning

Are You Maximizing Your Tax-Exempt Bucket?

Remember the child’s game hide-and- seek? As adults, most of us are still playing it. The difference is this time it’s with the IRS.
May 17, 2022
Should You Consider a Roth Conversion While the Market is Down?
Roth IRA Conversions

Should You Consider a Roth Conversion While the Market is Down?

Investors who are hurting right now as the stock market takes a hit may want to console themselves with a possible tax bargain created by a Roth conve…
May 16, 2022
Thinking about Rolling Your 401(k) into an IRA? 7 Deciding Factors to Consider
IRAs

Thinking about Rolling Your 401(k) into an IRA? 7 Deciding Factors to Consider

When you’re weighing a possible rollover from your company retirement account into an IRA, there are several things to think about first.
May 16, 2022