When individuals enter into their first marriage, they often have the same estate planning objective: when one of them passes away, take care of the surviving spouse until they too pass away, and their children receive the remaining assets.
Estate Planning Objectives in Second Marriages
However, a second marriage is often different. The children in the second marriage may be his, hers, or sometimes theirs. Assets are no different: they may be his, hers, or theirs. Oftentimes, each individual wants their property to go specifically to their children after ensuring that the surviving spouse has enough to live on.
In most situations, the estate planning strategy that an individual created during his or her first marriage will not work in a second marriage. For example, if a husband and a wife in a second marriage own a home as joint tenants with rights of survivorship. This means that when one passes away, the surviving spouse immediately owns the entire home outright. This will happen no matter what a will or trust says. So, if the husband dies first, the wife then owns the entire home and can whatever she wants with the home, including not giving any interest in the home to the husband’s children when she passes. In effect, the husband has accidentally made is possible for his children to become disinherited if he passes away before his wife.
Beneficiary Designations
Beneficiary designations unfortunately face similar complications in a second marriage. If a husband names his second wife as beneficiary of his IRA, life insurance, or other tax-deferred plans to provide for her, the second spouse can pass those proceeds to her children and completely disinherit the husband’s children. Of course, the same situation would apply with the wife’s beneficiary designations. While the spouses could promise to give some of the proceeds to each other’s children, such a promise is not binding and could be easily broken after a spouse dies.
Other Considerations in a Second Marriage
• If each individual in the second marriage is independently wealthy, you may want to keep your assets and estate planning separate. If you are discussing signing a pre-nuptial or post-nuptial agreement, you should have an estate planning attorney review it before you sign it.
• If you or your second spouse has significantly less property than the other, one spouse has considerably fewer assets than the other, one option is to create a QTIP trust. This trust provides for the less-wealthy spouse until he or she remarries or also passes away. The remainder of the trust property then goes to the wealthier spouse’s children.
• If there is a large age disparity between the spouses, and one spouse is close in age with the other spouse’s children, there can be tension within the family. The older spouse’s children may even be afraid that they will never receive their inheritance. Something for this kind of couple to consider is giving some of those children’s inheritance when the older spouse passes away and then the rest when the younger spouse also passes away or remarries.
• For your life insurance policies and tax-deferred plans, it may be a good idea to name your trust as the beneficiary. This allows you to keep control over the proceeds because they will be distributed to your children in accordance with the trust’s provisions. If you desire, your surviving spouse can receive the lifetime income but your trust controls how the rest of the proceeds are distributed. You also can take advantage of the trust’s protection against creditors, predators, bad financial decisions, and divorce.
• If one spouse ever needs aid from Medicaid, assets from both individuals in the marriage is counted as “available assets.” With this in mind, you should consider planning for disability and long-term care, such as long-term care insurance to protect your assets.* It will probably be a good idea for the couple in a second marriage to talk together about their estate planning goals. If their goals align pretty well, then the process to develop an estate plan will probably be pretty straightforward. If, however, they have different visions, then having separate attorneys may be preferred.
You love the members of your family. You want to do the right thing for everyone involved: yourself, your spouse, your children, and your spouse’s children. You can help you blended family by taking the time to consider your situation from the point of view of all your family members.