Thankfully, there is some advice an estate planning attorney can offer to a client in divorce proceedings to help prevent the unspeakable. However, before pulling out the tricks, one should familiarize oneself with the Illinois statutes that prevent a former spouse from inheriting from an estate plan after a divorce is finalized.
Section 5/4-7(b) of the Probate Act titled "Revocation-Revival" provides that the dissolution of marriage or declaration of invalidity of marriage of the testator revokes every legacy, interest, or power of appointment given to the former spouse and revokes a nomination of that spouse to a fiduciary office, such as Executor. See 755 ILCS 5/4-7(b). The effect of this statute is to treat the former spouse as if he or she had predeceased the testator. This statute applies, however, only if the will was executed before the divorce was finalized.
The Trusts and Dissolution of Marriage Act ("Act") provides that judicial termination of the marriage of the settlor of a trust revokes every provision of the trust that is revocable by the settlor pertaining to the settlor's former spouse, if that trust instrument was executed prior to the divorce judgment of dissolution of marriage ("judgment"), unless the judgment expressly provides otherwise. See 760 ILCS 35/1(a).
The trust shall be administered and construed as if the settlor's former spouse had died upon the entry of the judgment. This includes every present gift, future gift, interest, and power of appointment given to the settlor's former spouse as well as the right of the former spouse to serve in a fiduciary capacity. The Act applies to all non-testamentary instruments created after January 1, 1982. In other words, it applies to living or inter-vivos trusts. The Act can also be made to apply to testamentary trusts, by making a specific reference to the Act and stating, in the trust instrument, that the Act applies.
Generally, with the help of these statutes, it is not necessary that a client rush to modify an estate plan after a divorce. Nevertheless, the estate plan should be reviewed to verify that a successor executor and trustee are named and that such successors are still available or desirable as fiduciaries. Additionally, the estate plan should be checked to confirm that the provisions of the will, and especially the trust, clearly and unambiguously name the successor beneficiary of the personal property and of the residue. This prevents a portion of the property from accidentally passing pursuant to intestacy statutes.
Sometimes, there is a desire to retain the spouse as the Executor or to leave some assets to a former spouse. This desire is often anchored to a prenuptial or postnuptial agreement or a marital settlement agreement. Because Illinois statutes remove a former spouse as a beneficiary and as a fiduciary if the will or trust was drafted before the judgment, the client may then need to execute new estate planning documents to effectuate his or her intent.
Aside from the aforementioned statutes, Illinois law is not particularly helpful when a beneficiary designation is unchanged to remove a former spouse. A former spouse who was designated as the beneficiary of a life insurance policy is not barred from collecting the proceeds upon the death of the insured merely because they have divorced.
If a former spouse remains as the named beneficiary, he or she will only be barred if the property settlement agreement (also referred to as the marital settlement agreement) specifically terminates the former spouse's interest by referencing that particular policy (or if the policy itself says divorce terminates such a designation). A general waiver of the property rights upon divorce is not effective. See Allen v. Allen, 226 Ill.App.3d 576, 589 N.E.2d 1133 (2d Dist. 1992). Litigation (an interpleader action) will be required to resolve the issue of whether the former spouse is a proper beneficiary.
The Courts are just as unrelenting when it comes to survivorship accounts or pay-on-death designations. In Matter of James' Estate, the Court considered the following factors to determine whether the presumption of donative intent that existed when the joint account was created had been overcome: (1) a property waiver in the marital settlement agreement, (2) unfriendliness between the decedent and survivor, (3) the son's testimony that the decedent told him that he (the son) would inherit the account, (4) the willingness of the surviving spouse to assign the account to the estate, and (5) the fact that the decedent was the only person to make deposits or withdrawals. The Court found that despite the divorce and the above factors, the presumption of donative intent had not been overcome and held that the joint account was the property of the surviving spouse. See Matter of James' Estate, 39 Ill.App.3d 938, 315 N.E.2d 569 (2d Dist. 1976).
The Deida case held that a provision in the marital settlement agreement stating that the spouse waives any and all other rights, including property rights, was not sufficiently specific to waive the former spouse's interest as the named beneficiary of two certificates of deposit and an annuity which were owned by the decedent spouse, even though the decedent spouse had sole control and ownership of the disputed instruments. See Deida v. Murphy, 271 Ill.App.3d 296, 647 N.E.2d 1109 (5th Dist.1995).
Though Illinois law offers some relief when it comes to a provision for a former spouse in an estate plan, there appears to be no relief when it comes to joint accounts and beneficiary designations.
Clients who are in the midst of a divorce should truly engage two types of lawyers—a divorce lawyer and an estate planning lawyer. The estate planner can scrutinize the various assets and determine whether the client's assets should be held in a revocable or living trust or transferred to an irrevocable trust. If a spouse dies during a pending divorce, the surviving spouse may seek to inherit property from the decedent spouse's estate. Even if the decedent's will leaves no provision for the surviving spouse, he or she may file a renunciation and claim up to one-half of the probate estate.
Illinois law currently prevents a surviving spouse from filing a renunciation as to the assets that are not part of the decedent's probate estate. In Johnson v. La Grange State Bank, the Court explained that "[a] surviving spouse only has an interest in the property that becomes part of the decedent's estate. If the interest in the property passed under a valid inter vivos conveyance it would not become part of the decedent's estate and the surviving spouse would have no interest in it." See Johnson v. La Grange State Bank, 73 Ill. 2d 342; 383 N.E. 2d 185. Therefore, it may be advantageous to transfer property to a trust and limit the property that will pass through the probate estate.
However, a very careful evaluation must be undertaken by the estate planner, on a case-by-case basis, to determine if a transfer to a trust may be made for this purpose. Additionally, an estate planner can review survivorship accounts and beneficiary designations to determine whether they may be changed to name someone other than a spouse and can assist the client in re-titling the more complex accounts, such as retirement plan accounts.
It is most important that a client be informed about the intertwining legal issues while a divorce is pending. Estate planners have a different focus than divorce attorneys. When the author, an estate planner, drafts prenuptial or postnuptial agreements, the author addresses the issue of a death during a pending divorce and provides for a division of assets under that circumstance. The author also focuses heavily on estate planning, gifting, retirement plans, inheritance, family business assets, and beneficiary designations when drafting these types of agreements or when reviewing these agreements that were drafted by other lawyers.
Though the risk of death during divorce is low, the attorney and the client must plan for this contingency. Proper planning may prevent the pending divorce from creating further litigation for the surviving family members in Probate court, Chancery court, and Federal court.
