By: Joseph Goldy, CFP®
In this installment of our video series on financial planning for newly independent women, we delve into updating beneficiaries across key financial documents and accounts. Whether you are navigating the aftermath of a divorce or coping with the recent loss of a spouse, it is essential to review and revise your estate documents, life insurance policies, and investment accounts to reflect your new circumstances. Additionally, we'll explore health insurance options that are available to you during this transition. These steps ensure your financial future is secure and your assets are distributed according to your wishes.
Welcome Back
Hi, Joe Goldy, Certified Financial Planner™ with Highland Financial Advisors. Welcome back to my series on financial planning for newly independent women. Today, what we're going to talk about applies not just to divorcées but also to someone who may have recently lost their spouse. Specifically, we will cover updating beneficiaries in three critical areas: your estate documents, your life insurance documents, and your retirement/investment accounts. Finally, I'll also talk about health insurance and some options available to you as a divorcée or widow. So, let's get started.
Updating Estate Documents
The first area I want to discuss is your estate documents. This includes your Will, financial power of attorney, and healthcare power of attorney. Post-divorce or after the loss of a spouse, these documents often need updating.
Will
For instance, you may need to update the executor if your spouse was previously named within your Will. If children are involved, you might need to update the trustee and successor trustees for any trusts established for their benefit.
Healthcare and Financial Power of Attorney
Similarly, your healthcare and financial power of attorney documents, which typically name your spouse, must be revised to reflect your new circumstances.
Within your Will, post-divorce, or having lost a spouse recently, you’re often naming a spouse as your executor. Your executor is the person you’re naming to carry out the wishes and provisions within the Will. Obviously, you will want to update who that executor is after a divorce or the loss of a spouse. Also, within a will, if there are children involved, there may be a trust that kicks in after your passing, and those assets that you have may go into a trust. That trust has a trustee, who you’re naming as trustee and successor trustees if anything happens to the first trustee or co-trustees. So, you will likely want to update that person if you have your spouse named as trustee, and within the divorce agreement, that's changing.
You also have your healthcare power of attorney. That's somebody who you’re naming to carry out your healthcare wishes if you become incapacitated. Again, it’s usually a spouse, so if that’s changing, or you want to name somebody else post-divorce, or if you’ve lost your spouse, it’s very important to update that document. The financial power of attorney is essentially the same thing, but it’s the person you’re naming to control your financial documents and to have the power to sign on your behalf with any financial accounts you have. The person you name as executor within your Will, financial power of attorney, and healthcare power of attorney might all be the same person, or you can name different people. Some people are better suited toward healthcare decisions versus financial decisions.
Often, an attorney's services are used to update these documents. What we like to do is I’ll sit down as a financial advisor with my clients who are going through these changes, and we will discuss what changes need to be made to try and minimize the amount of time you’re spending with your attorney. You’re paying by the hour, so we try to minimize that cost as much as possible. We’ll have these conversations one-on-one prior to speaking to an attorney.
Updating Life Insurance
Next, let's talk about life insurance. This includes term insurance, whole life insurance, and annuities. After a divorce or the loss of a spouse, it is crucial to update the beneficiaries on these policies. Often, the primary beneficiary is your spouse, so changes are necessary to ensure your policies reflect your current situation.
Term Insurance, Whole Life Insurance, and Annuities
Here, what I'm referring to specifically is term insurance and whole life, and I'm going to group annuities here as well. Obviously, after a divorce is finalized or after having lost a spouse, beneficiaries very often need to be updated with any terms, whole lives, and annuities. Often, it is the other spouse who’s the primary beneficiary, so not only does the primary beneficiary have to get changed, but potentially contingent beneficiaries are as well. Again, that applies to any term insurance, whole life policies, and any annuities that may be out there.
Irrevocable Beneficiary
Something that is often overlooked post-divorce is if you’re the spouse receiving alimony and child support, you are often due life insurance coverage by your ex-spouse. Your ex-spouse must have certain coverage put in place to cover their life if they die. You're still going to get your alimony and child support due to you. What’s often overlooked is that after a divorce, no one’s really checking up to see if that insurance was changed properly and if the proper amount of coverage is there for you as the beneficiary. One way to protect yourself is to ensure you are named as an irrevocable beneficiary within your divorce agreement. Irrevocable beneficiaries are different from regular beneficiaries. It’s much more challenging to make any changes to an irrevocable beneficiary, so that is something you want to talk to your attorney about and make sure that it’s stipulated in your divorce agreement that you’re named as an irrevocable beneficiary, not just a regular beneficiary. That way, you’re protected, and you know you have enough insurance in place that if anything happens to your ex-spouse, you will get your alimony and child support due to you.
Updating Investment and Retirement Accounts
Now, let's discuss investments and retirement accounts. This includes your IRAs, traditional and Roth IRAs, and work retirement plans like 401(k)s and 403(b)s. You must update the beneficiaries on these accounts to reflect your new status.
IRAs, 401(k)s, and Work Retirement Plans
Regarding your investment accounts, we're referring to your IRAs, traditional and Roth IRAs that you may have, and any work retirement plans like 401(k)s 403(b)s and pensions. On all these account types, whether it’s IRA or 401(k), there are beneficiaries that are named. Often, it’s your spouse or ex-spouse, so you want to update those beneficiaries on your IRA and any work retirement plans you have.
TOD and POD Accounts
Similarly, within your investment accounts, very often, what we see are transferred on death (TOD) and payable on death (POD) accounts. TOD is where you can name beneficiaries on your regular investment account. You’ll want to update those. POD applies to any bank checking or savings accounts where you’ve named beneficiaries.
529 College Savings Plans
Another category just to mention, though not as common, is within 529 College Savings Plans. Very often, there’s a successor owner named. If anything happens to the owner of the 529 College Savings Plan, that person will then kick in as the owner. This may still be your ex-spouse because you have children together, but there are situations where you may want to update that successor owner as well.
Those are the main areas we are discussing: your IRAs, work retirement plans, investment accounts, and any bank checking or savings accounts across the board. You’re going to want to update beneficiaries on all of those.
Health Insurance Options
Before we finish, let's touch on the health insurance options that are available to you.
Employer Coverage- If you are employed, you will likely have coverage under your employer's plan.
COBRA - If not, COBRA allows you to continue coverage under your ex-spouse or late spouse's plan for up to 36 months, although it can be expensive.
Healthcare Marketplace - Another option is the healthcare marketplace, where you can shop for and compare different plans to find the one that best suits your needs.
Regarding the Healthcare Marketplace, each state has its own dedicated healthcare marketplace website where you can go online. We typically help clients with this here at Highland. We'll go online, and you can shop around among different plans, compare different plans, and see the different coverage amounts and premiums available. That is a third option for a lot of people.
Recap
To recap, today we discussed the importance of updating beneficiary designations in three areas: estate documents, insurance policies, and investment accounts.
Estate Documents- Estate documents include your Will, financial power of attorney, and healthcare power of attorney.
Insurance Policies - Insurance policies include term insurance, whole life insurance, and annuities.
Investment Accounts - Investment accounts include IRAs, 401(k)s, other retirement plans, and any TOD or POD accounts. Additionally, we touched on health insurance options available to divorcées and widows.
I hope this information helps. As always, I offer a free 15-minute consultation, which you can schedule through our website at HighlandPlanning.com. See you next time!
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.