More than half of all marriages end in divorce, of these 75% will marry again. Of these, 65% of the remarriages will involve children. These facts can present some unique questions in estate planning. Either or both spouses could have been married, gotten divorced, and have children from a previous marriage.
Estate planning in the new age of the blended family is challenging, and extremely important. Without a solid estate plan, you have no way of knowing what exactly will happen to your assets unless everything is set out in writing. Without it, a child could be inadvertently disinherited. Or there could be a significant delay in a child receiving their inheritance (because the assets were left to the spouse and the children will not receive it until the spouse passes). If not diligent, a former spouse may lay claim to the estate, or there could be disputes over the division of personal property.
Remarriage
The ultimate goal of remarried couples is usually to ensure that in the event of one of them passing, the other spouse will be taken care of, and when the surviving spouse passes their assets will go to their children. The challenge here is creating an estate plan where the couple’s wishes are communicated between themselves and with their family, so everyone has a firm understanding of their intentions.
Designating a Beneficiary
Care should be taken regarding the designation of a beneficiary for investment and retirement accounts. One mistake that’s often seen is where the account paperwork has not been updated, and an unintended beneficiary is on the paperwork. This causes a major problem because a beneficiary designation trumps a will or trust. So if an ex-wife is still on the life insurance policy, but the remarried couple’s will says the new wife should receive the assets, the ex-wife will still receive the life insurance proceeds.
It’s also important to be mindful of who is designated as the primary beneficiary and who is designated as a contingent beneficiary. Some people are under the mistaken impression that the funds in an account will be split between the beneficiary and contingent beneficiary. This isn’t the case. A husband for instance may name his new spouse as the primary beneficiary, and his two children as contingent beneficiaries. When the husband dies, the new wife will receive the entire amount, and the children will receive nothing. To correct this, it’s best to name all three people as primary beneficiaries, with the percentage of proceeds going to each party.
Trusts
Many people use a trust to distribute estate assets. It’s important to note however that the existence of a trust does not preclude the need for a will. The will serves to carry out the wishes of the deceased, and will take care of any items that were not specifically put into the trust.
A common scenario seen with trusts is where the new couple creates a trust, and the husband is named as the trustee. When he passes, the wife becomes the trustee. The end result of this is that now, the wife and the children now have conflicting interests. The wife may make investment decisions for instance, that produce a more solid monthly income for her to draw upon, minimizing long term growth of the investment. The children on the other hand, want an investment that provides for long term growth, which will provide the wife with little monthly income to live off of. For these types of reasons it is advisable to appoint an impartial third party to serve as the trustee and avoid the possible conflict.
Prenuptial Agreements
A prenuptial agreement is a good idea in many circumstances. Most importantly, it causes the newly married couple to sit down as discuss their financial situation and their respective expectations. Getting this down on paper is an excellent start to a clear understanding and open communication.
What To Do Next
Estate planning can be deceptively complex. Not only do state and federal laws change, but every family situation is different. Seemingly small choices in how planning is done can have profound tax and family implications, and not having a plan in place can be worst of all.
Our team offers clients a No Hassle Trust and Estate Strategy Meeting, where they get experienced guidance on how to achieve total asset protection, long term security, and peace of mind for themselves and loved ones.
Call (855) 904-REAP for a free consultation.
