Editors Note: In an effort to help NARFA Members face the many issues associated with estate planning, business planning, and insurance review and placement, NARFA and Thomas Brady & Associates continue to work together to bing you helpful answers to your most pressing questions.
Today, we bring you the fourth article in our ongoing series, Estate Planning Basics. The information within Estate Planning for Second Marriages & What to Be Aware Of is designed to help you protect your life’s work, whether you are planning a second marriage or have already entered one.
Estate Planning Basics: 4 Steps to Estate Planning for Second Marriages
Estate planning for so-called “blended families” is critical. There are several issues that you need to think about when estate planning for second marriages, most of which deal with the transfer of assets upon death. The good news is that there are often many ways to address these issues far enough in advance so that you can avoid the intra-family disputes that make headlines.
The following steps should serve as a guideline and a framework for you and your family in thinking about your estate planning for a second marriage. Note that every family is different and some or all of these issues may be more or less relevant to you.
Step 1: Establish a Total Asset Review
Undertake a comprehensive review of the assets that each spouse has brought to the marital relationship and the assets that have been generated together as part of the marital unit. This analysis also should include understanding the terms of any prenuptial or postnuptial agreement that may be in place between you and your current spouse, as well as any divorce agreement or other judgment that may be in place with respect to any former spouses. Understanding your financial picture, including your assets, liabilities and support needs and obligations is critical for your planning.
Step 2: Identify How You Want Your Assets Distributed
Talk to your spouse about your respective goals and wishes regarding the distribution of your assets upon death. This may not be an easy conversation, but having this conversation now will make the administration of your estate that much easier for your surviving family. Blended families are complicated. Children from different marriages, spouses with different levels of independent wealth and age at the time of remarriage are all factors that go into this discussion. You may realize that you have an unintended conflict that needs to be resolved. Addressing those issues early on will enable you to resolve those conflicts, meet your goals and provide for your surviving spouse and children.
Step 3: Confirm Titles to All Assets
Make sure that title to your assets is in line with your goals for your asset distribution. The manner in which you own things like your personal residence can have a drastic impact on the disposition of your assets at death. For example, many people take title to their primary residence “as joint tenants with rights of survivorship.” That type of ownership means that when you die, your surviving spouse will become the sole owner of the property; ultimately, this gives your surviving spouse the power to transfer that property to anyone he or she chooses (whether or not that was your original intention). This issue might take center stage if each of you has children from a prior marriage. If you want to ensure that a fair portion of the house is transferred to your children (not just your new spouse’s children), ownership of the property as joint tenants might not work. Even though your new spouse might promise to take care of your children, he/she has no legal obligation to do so and you won’t be there to ensure that he/she does. A similar case can be made about any other asset that you own jointly with your spouse (like bank accounts or brokerage accounts). Of course, if your intention is to leave all of your assets to your surviving spouse, then holding things in joint name is not a problem.
Step 4: Consult an Estate Planning Attorney to Finalize Agreements
Consult an estate planning attorney to devise a proper estate plan that will enable you to effectuate your family goals. In addition to addressing issues like the guardianship of any minor children (which can be complicated if there are ex-spouses), there are a number of planning strategies available to make sure that you take care of your surviving spouse while also protecting your children from a prior marriage. One example is called a QTIP trust. A QTIP trust provides generally that the surviving spouse is entitled to all of the income in the trust (or the use of the assets inside the trust – like a house) for his/her lifetime. Upon the spouse’s death, the remaining property passes to whomever you had previously designated in the trust instrument (i.e., your children from a prior marriage). Another trust vehicle that can be useful is an irrevocable life insurance trust (an “ILIT”). These trusts are designed to be the owner and beneficiary of a life insurance policy on your life, thus keeping the death benefit outside of both your taxable and probate estate. The trust provisions can provide for the care and support of your spouse, while ensuring that assets inside the trust are preserved for the benefit of your children as well.
If you have any questions about how these issues about estate planning for second marriages might apply to you, or if you need help in connecting with the right estate planning lawyer, feel free to reach out to Amiel Weinstock at Thomas Brady & Associates by sending an email to him at email@example.com, and please reference this NARFA Blog in the subject line. You can also visit Thomas Brady & Associates directly here.
© Copyright 2014 Thomas Brady & Associates, Boston, Massachusetts. All rights reserved. To ensure compliance with IRS requirements, we inform you that any federal tax advice contained in this communication (including any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (including any attachment).
NARFA is proud to endorse Thomas Brady & Associates. For more information on estate planning specifics and estate planning basics, please visit NARFA’s Estate & Business Planning Services page or contact us today.
We also encourage you to catch up on the latest from our Estate Planning Basics series, including:
- Part 1: What to Know About Intra-Family Loans
- Part 2: Why Do I need to Have an Estate Plan? I Don’t Even Have an Estate!
- Part 3: Dying Without a Will or Estate Plan and What Would Happen to Your Property
At NARFA, we’re always here to answer your questions and help you navigate life’s most complicated situations! Contact us today.