In first marriages, the husband and wife usually have the same goals when it comes to their estate planning: take care of the surviving spouse for as long as he or she lives, then give whatever is left to the children. They own most of their assets jointly and, at the death of the first spouse, more than likely, both want everything to go to the surviving spouse.
It usually gets more complicated with later marriages, whether the result of death or divorce. There may be his children, her children and sometimes their children. Each spouse probably brought their own assets into the marriage, and they may want to make sure those assets to go to their own children after they die. At the same time, they probably want to ensure the surviving spouse will have enough to live on.
Because of these typical complications, estate planning methods relied upon by people in a first marriage often don’t work for people in second marriages. For example, let’s say the husband adds the new wife’s name on the title of his home and they own it as joint tenants with right of survivorship. If he dies first, his share will immediately transfer to his wife, who now has complete ownership of his home. She can do whatever she wants with it in those circumstances, regardless of what his will or trust says. She can leave it to her own children and completely disinherit his.
There are similar problems with beneficiary designations. Many people name their spouse as beneficiary of their life insurance, IRAs and other tax-deferred plans to provide for their spouse should they die first. But this can be a problem with second marriages because the spouse-beneficiary can name anyone he or she wants as new beneficiaries or to inherit the proceeds, bypassing the owner’s children. Promises may be made now to include them, but promises can be broken after one spouse is gone.
- If each has considerable assets, it may be wise keep the assets and estate planning separate. If there will be a pre- or post-nuptial agreement, it should be reviewed by an estate planning attorney (before signing).
- If one spouse has considerably fewer assets than the other, it is possible to provide for this spouse until death or remarriage, then have the remaining assets distributed to the children of the “wealthier” spouse. This is often accomplished through a life estate or QTIP trust.
- If the new spouse is much younger, the children of the older spouse may be concerned that the new spouse is only after the money. These feelings may subside as the marriage lengthens. But if the younger spouse is closer in age to the children, they may be wondering if they will ever receive their inheritance. Consider distributing some of their inheritance upon their parent’s death, then the rest at the surviving spouse’s death or remarriage.
- Naming a trust as beneficiary for life insurance policies and tax-deferred plans is often a good choice for second marriages. This will allow the owner-spouse to keep control over how and to whom the proceeds are distributed. The surviving spouse can receive lifetime income, yet the owner-spouse can keep control (through the trust) over the rest of the proceeds. Keeping the proceeds in a trust will also protect them from irresponsible spending, creditors, predators, divorce, remarriage and even estate taxes, if done properly.
- Be sure to include planning for disability and long-term care. If one spouse becomes ill and Medicaid assistance is needed, the combined assets of the couple will be considered “available assets” to pay for the care of the ill spouse. Long-term care insurance may be needed to protect the assets of one or both spouses.
- It is a good idea for the couple to discuss their individual estate planning goals together. If they are similar, then the task may be somewhat easy. But if they are considerably different, separate attorneys may be needed.
You want to do the right thing for everyone involved: yourself, your spouse, your children, and your step-children. When putting your plan together, it will be critical for you to take the time to consider everyone’s point of view.