What Do I Need to Know about Second Marriage Estate Planning?
AARP’s recent article entitled “Remarried with Children? 5 Estate Planning Mistakes to Avoid” says that most mean well and want their spouse to inherit their possessions when they die, then want their heirs to split what’s left when the spouse dies. Here are five mistakes to avoid and to prevent fighting and hard feelings after you are gone.
Second Marriage Estate Planning Mistake #1: Failing to change beneficiaries. This is one of the most common mistakes. An advantage of changing the name of the beneficiary, is that the money will go directly to the intended person, typically the surviving spouse, bypassing the probate process. Review all of your financial accounts to be certain that your spouse is designated the beneficiary (if that is your intention). You should also check all life insurance beneficiaries because these payouts also do not go through probate. If this assets is an IRA, usually this is a tax advantaged approach, since your spouse can keep these funds in the IRA by doing a “spousal rollover”. However, keep in mind that if you name your second spouse the beneficiary, your spouse has the right to leave those asset only to his or her children when he or she dies. So if your IRA is very large, comprising a large portion of your estate, you may want to leave part of the IRA to your children (even it it can’t be rolled over).
Second Marriage Estate Planning Mistake #2: Trusting your spouse to treat your children equally with your children. Many clients make a deal with their second spouse that is not enforceable. The deal is “I’ll give you everything, then when you die, you treat my children the same as you treat yours”. Frankly, this is naive. I can’t tell you how many times I have seen this deal go sour. Your spouse is not required to follow your directions once you are gone. Your spouse is very likely to leave your children out of his or her will, and only include that spouse’s children. If you want to leave your children out of your will, then ok. It is your assets, and you are entitled to do what you want. However, you should treat an outright bequest to a second spouse as writing your own children out in favor of your second spouse and your second spouse’s children.
Second Marriage Estate Planning Mistake #3: Failing to Create a “Joint Will” through a Revocable Living Trust. If you want to avoid Mistake #2, you can create a Revocable Living Trust (RLT). Although there is no such thing as a “joint will” under Louisiana law, you can effectively get the same result with a Revocable Living Trust. This would prevent your surviving spouse from just leaving all assets to his or her children (and cutting yours out) when he or she dies. The RLT can be made partially or fully irrevocable on the death of the first spouse to die, and can provide certain Medicaid qualification benefits as well. This is not just a probate avoidance tool! It is a highly recommended estate planning tool for second marriages with children from prior marriages.
Second Marriage Estate Planning Mistake #4: Failing to change your will. A will states who gets the rest of the assets that you and your spouse accumulated during your lifetimes. Update your will to avoid handing your home to your ex-spouse. People on their second marriage usually decide that the surviving spouse gets all the assets, and upon the death of the second spouse, the remaining assets will be divided evenly among the children. However, this assumes that everyone will still be getting along in the future, and that your spouse, upon your death, will not write a new will that removes your side of the family from the estate. You should also plan in advance who will get important family items, no matter if their value is sentimental or otherwise. You do this with a codicil to your will or a letter of instruction to your executor.
Second Marriage Estate Planning Mistake #5: Treating all heirs equally. There is no law that says all children must be treated equally. There are many reasons why parents do not treat children equally, such as when there is a child with special needs. In that instance, you should talk to your spouse about how to ensure that child is protected, perhaps through an ABLE (Achieving a Better Life Experience) account or a trust. In some situations, a child may have an addiction or a gambling problem. Some parents will create a “spendthrift trust” which disburses money at regular intervals to the beneficiary and deters creditors from getting the money in the trust.
Second Marriage Estate Planning Mistake #6: Waiting until you are gone to give. If you are planning to leave money to your children, you might think about giving it to them now, rather than in your will. Many clients think that they can only give away $10,000 or $15,000 per year. This is a misconception. Feel free to talk to me about why that is.
Second Marriage Estate Planning Mistake #7: Not Using an Experienced Estate Planning Attorney. If you are older and on your second marriage, chances are that your life is not uncomplicated. Ex-spouses, blended families and comingled assets create complexity, as well as having a child with special needs or an aging parent. It is smart to invest the time and money in creating a comprehensive estate plan with the help of an experienced estate planning attorney.
To learn more about esate planning topics, read these articles: Court Victory for Adults Caring for Parents at Home and What’s the Latest on the VA’s Overhaul of the Application Process for Caregiver Benefits? and What Could Proposed Estate Tax Bill Mean to You?
Reference: AARP (July 9, 2021) “Remarried with Children? 5 Estate Planning Mistakes to Avoid”