It’s a delicate balance to hold: preserving assets for children from a first marriage and—at the same time—ensuring that your new spouse will have the assets needed to maintain his or her life in comfort. Balancing the two often requires coming to terms with realistic expectations for all.
CNBC’s article, “Getting remarried? Protect your assets and your interests,” recommends looking ahead and addressing questions about your goals, how your existing family and new spouse will relate to one another when you're gone and who will be in charge of the money. The big issue that heirs of a remarrying couple need to worry about more than federal estate tax is the new spouse.
The reason for this is that every state except Georgia gives rights to a spouse to make an elective share against a decedent spouse's estate or have the right to community property. That means that a portion of an estate could go to the new spouse even if the decedent's will disinherits him or her. Unless you expressly exclude your new spouse from your will, he or she typically has an intestate right against the probate estate.
If an individual has an ERISA retirement account, the spouse likely has certain rights to it—whether it is a defined benefit or a defined contribution plan. IRAs aren’t subject to the same rules. In many states, the surviving spouse has rights to certain personal property. Sometimes this is based on values, and other times it’s set out in a state statute.
If there is no estate plan in place, the new spouse is often statutorily designated as the first decision-maker with the legal authority to deny access to anyone who might want to have a say in the affairs or care of the incapacitated spouse. An ex-spouse may still be involved because assets could still be left to your ex if you fail to update your beneficiary designations—even if you intended to leave things to your new spouse and/or children instead. You might be contractually obligated to keep your ex-spouse as beneficiary of a retirement account or life insurance policy for a certain period of time, something not uncommon in divorce decrees. Check any divorce decrees to be sure.
When you’re updating your estate planning documents, also think about the following issues. First, consider whether you’d like to name your new spouse as a trustee, executor or agent; the disposition of assets can become tricky when there are kids from prior marriages. Next, take a look at your assets and ensure they’re properly aligned with your estate plan. If you’re not careful, an old beneficiary designation naming an ex-spouse could upset the balance of your estate plan. You’ll want to ensure all assets earmarked for distribution through a trust are in the name of the correct trust, that all beneficiary designations have been updated to name either the correct individuals or the correct trust, and that you’ve correctly planned for any retirement assets, such as 401(s) and IRAs.
If you or your new spouse are older, you might need to consider Medicaid planning, especially for long-term care planning or planning where your spouse would live if you die first. Also, you may need to specifically bequeath certain personal items to your children—depending on family significance and your wishes—and be aware of how “children” is defined in your estate plan. This could include only your own children or also your spouse's children. Here are a few other common estate planning mistakes people make after remarrying:
- Beneficiary designations left out-of-date;
- Assets unintentionally comingled or out of alignment with the estate plan;
- Failure to work with an estate planning attorney on creating a new plan or editing an existing plan;
- No prenuptial agreement;
- Instructions to loved ones are verbal, not in writing;
- Failure to properly title the house, whether that be in the name of a trust or as jointly-held property; and
- Not buying long-term care insurance or planning for possible nursing home care.
There are a lot of pitfalls in creating an estate plan for a second marriage, and you’ll want to speak with an estate planning attorney sensitive to the needs of a blended family. Also, be clear about your goals and your intentions with your children and your spouse. You do them a disservice by waiting until after you are gone for your plans to be revealed, so hold a family care meeting to outline the plan and ensure everyone understands your wishes, as well as their roles and responsibilities.
At Family Estate Planning Law Group, we know that it can be difficult to find a good opening for discussing your estate plan with your loved ones. However, especially in the case of a remarriage, it’s crucial to ensure everyone is on the same page. That’s why we strongly encourage our clients to hold a Family Care Meeting to outline the basics of the plan, your reasoning and the roles each individual will need to fulfill. A little clarity now—especially when heard from you—can mitigate family fighting later.
For more information on this and other estate planning topics, explore our website and contact us to schedule your consultation today!
Reference: CNBC (July 28, 2016) “Getting remarried? Protect your assets and your interests”