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 planning document, such as a will, power of attorney or health care directive, 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.
The 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. Check the fine print.
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 your trustee/executor/agent because the disposition of assets becomes tricky when there are kids from prior marriages. Next, take a look at your assets and decide if you want to hold them individually or jointly. Jointly-held assets with rights of survivorship means that your surviving spouse will inherit these assets automatically without probate. Note that in a community property state, property that is obtained prior to marriage or in an inheritance can retain its character as separate property.
If your new spouse moves into your house, you’ll have to decide if you want to add his or her name to the deed and to the mortgage. You should consider where your spouse will 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 by your will. 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;
- Failure to work with estate planning attorney on new estate planning documents;
- No prenuptial;
- Instructions to loved ones are verbal, not in writing;
- Failure to properly title the house; 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 who is sensitive to the needs of a blended family. Also, be clear about your goals and your intentions with your children and your spouse. They may not like your decisions, but you may do a big disservice to both by waiting until after you are gone for your plans to be revealed.
Reference: CNBC (July 28, 2016) “Getting remarried? Protect your assets and your interests”