Estate Planning Second Marriage Warning: How to Avoid Disinheriting Your Kids
During my thirty plus years as an attorney, I have seen many unique and unusual situations that I have had to resolve for my clients. However, one estate planning situation which my clients have presented to me many times for solution is when a couple is in a second marriage with children from prior marriages, maybe even children from the second marriage. Not all solutions are the same, but the fact pattern is common to second marriages.
The second marriage couples major concern is how to avoid disinheriting their children from a prior marriage. After years of practice, I can state with confidence that if you consult with an estate planning attorney there are strategies you can implement to avoid disinheriting your children.
How Scott and Julie Through Estate Planning Avoided the Disaster of Disinheriting Their Children from a Prior Marriage
Scott marries Angie when both are 30. Scott and Angie have two children, Ben and Jerry. After raising Ben and Jerry, Scott and Angie join the 50% of American families whose marriage end in divorce. Scott meets Julie and they get married and grow old together. Julie has been previously married and has two daughters, Mary and Sue.
Scott (78) and Julie (74)( a fictional couple) have a long-term marriage. They come to me concerned about how each of their children from a previous marriage will be taken care of after they die.
Failure to Do Their Estate Planning Could Result in Scott and Julie Unintentionally Disinheriting Their Children
Scott’s two boys and Julie’s two girls are now in their late 40s and early 50s. Scott and Julie have no idea what to do to protect their children’s inheritance. I tell Scott and Julie that this is a common problem for couples in a second marriage. I also explained that putting off planning could result in their children being disinherited.
I told Scott and Julie that although I have worked with second marriage couples to protect their children’s inheritance, each situation is unique and the solution is not always the same. It is more than using Wills or Trusts to have an estate plan that meets your intention. Your situation is different from other couples because your goals, aspirations, values, assets, and beliefs about how to leave your stuff for your children are unique to you.
After Reading this Article You Will Know The Estate Planning Options to Avoid Disinheriting Your Children
In this article, you will discover:
- The top 6 estate planning concerns for second marriage couples
- The benefits and shortcomings of estate planning strategies for second marriages; and
- 8 actionable estate planning strategies to protect your assets, provide for your spouse, and make sure your children receive their inheritance
The Top Six Estate Planning Concerns Keeping Second Marriage Couples Awake at Night?
After meeting with many second marriage couples such as Scott and Julie in my estate planning practice over the years, here are the top six concerns you probably have about estate planning in a second marriage:
- How can I provide for my wife/husband and not disinherit my children from my first marriage?
- How can I prevent disinheriting my children?
- How can I protect assets from my former spouse?
- What happens if my spouse remarries and is estranged from my children?
- I came into this marriage with significantly more assets than my second spouse, can I ensure my assets go to my children?
- Will my children lose their inheritance if my new spouse requires long term care?
Let’s Be Realistic: There is No Perfect Estate Plan for Second Marriage Couples with Children from a Prior Marriage
There is no perfect estate plan for a couple in a second or third marriage, each with children from a prior marriage, and perhaps children from the current marriage. The “yours, mine and ours” marriage presents an estate planning challenge not only for the couple but for the estate planning attorney.
Many of my estate planning clients require what would be called a basic will package or a basic trust package. The fact patterns repeat, and both personal, financial and tax aspects of the couple’s lives are relatively uncomplicated.
Second Marriage Estate Planning with Children is Complicated
Enter the second marriage family. Frequently, both the personal relationships and family interaction are complicated. When you married for the second time, you most likely had children, your new spouse most likely had children from a prior marriage, you and your new spouse may have different “family values”, you and your spouse may be from different cultures with different value systems, and you and your spouse may have different goals and aspirations.
There is no “Simple” Second Marriage with Children of Blended Families Estate Plan
The economic aspects of the second marriage can be diverse. You may have brought a $1.0 million estate to the marriage and your spouse may have brought a $200,000 estate to the marriage. You may be in your seventies while your spouse is in his forties.
You may believe what is mine is ours and your spouse may believe what he brought to the marriage will remain his and only what is accumulated after marriage is ours.The number of players with an interest is larger and the relationships among the players are by marriage and not blood. With all these challenges, how can you avoid misunderstandings, prevent damage to the second marriage family unit, and avoid
The number of players with an interest is larger and the relationships among the players are by marriage and not blood. With all these challenges, how can you avoid misunderstandings, prevent damage to the second marriage family unit, and avoid misunderstandings?
You Can Preserve Family Harmony Even With Second Marriage Challenges with Proper Estate Planning
Just like Scott and Julie, your goal is to provide for your new spouse, leave an inheritance to all children, and preserve family harmony. While it is a tall task, second marriage couples like you, and like Scott and Julie, can achieve their goals and maintain family harmony utilizing some of the actionable estate planning strategies I use in my estate planning practice.
When Scott and Julie came to me they knew they had a problem. Like many couples, they just didn’t understand the scope of the problem. They knew it was a difficult subject for them. What they did not realize, was the longer they waited, the problem would get worse, and the solutions available would decrease.
Scott and Julie Wonder Why I am Asking So Many Questions and Not Telling them How They Should do their Estate Planning
Good question. Remember your goals as a second marriage couple: preserve family harmony; provide for your spouse; and protect your children’s inheritance. Walk before your run.
If you schedule an appointment with me, I will do a discovery interview. Before I can recommend specific strategies I need to know your distinct needs, your goals, family relationships, assets, your priorities, your thoughts on protecting yourself from possible future divorce, learn about agreements or support obligations with a prior spouse, any marital agreements, and how your estate will pay taxes.
How do you feel about leaving family heirlooms and special assets to your natural children? Have you thought about what you want if both of you die at the same time?
There are even more questions and issues to discuss with an estate planning attorney. When I go into these areas with second marriage couples, I often hear “I never thought about that.”
Only after a thorough understanding of your family’s needs, goals, and aspirations, can I help with the selection of the appropriate estate planning strategies? While there are more than 8 strategies I can use in my practice for second marriage couples, the following 8 strategies are frequently used strategies to protect both your spouse and children in a second marriage.
8 Ways Estate Planning Can Protect Your Assets and Your Children in a Second Marriage
Have a Pre-marital or Postmarital Agreement
After going through a stressful, emotionally draining divorce with your ex-spouse and her lawyer, you have recovered. In fact, you have now found someone that understands and loves you. Someone who you want to spend the rest of your life with and share each precious moment.
You are in love. You’re planning your marriage with your soon to be spouse. You gently lean over and whisper in his or her ear—“I think we should determine now who will get what assets when one of us passes away before we complete the guest list and hire the caterer for the wedding, let’s go see an estate planning lawyer.” Takes a lot of fortitude to address asset planning with your soon to be spouse.
A Pre-marital agreement can resolve important issues, reduce your stress over assets going into the marriage, and reduce uncertainty. So, if you have the courage to interrupt your love fest and go to an attorney to negotiate an agreement, why not jump in the car and as Nike says: “Just Do It?” Here are 3 reasons for procrastination:
- Attorneys are expensive. An agreement will require negotiation, drafting, and implementation. An attorney should not represent both parties. Two attorneys? Cha Ching!
- Emotion and Conflict. Negotiation of any agreement can be emotional and stressful. In this case, you are negotiating with a soon to be a spouse who is insulted that you care more about “stuff” than you do about him or her.
- If you walk away with what you think is less than you and your kids deserve, it can leave a lingering resentment that could affect your marriage.
Should you take these risks and ask to enter into a pre-marital agreement with the new love of your life? All I can say is each situation is different. Scott and Julie failed to have such an agreement. You may decide to get such an agreement to protect your spouse, yourself and your children.
You have to read your future spouse carefully and approach the subject with caution. As a general rule, I find that working out asset division and distribution before marriage is generally easier than doing it after marriage.
2. Revoke any Will, Power of Attorney, Trust and Advance Medical Directive from a Prior Marriage
Revoking you existing Will, Power of Attorney, Trust and Advance Medical Directive seems obvious enough. Some states even have laws that automatically revoke these documents on the final judgment of divorce.
The recent Lamar Odom overdose case is an example of the consequences of not revoking powers of your soon to be ex-spouse. Lamar Odom overdosed in a Nevada brothel and was unconscious in a Nevada hospital. Divorce proceedings had already been filed. The divorce was not final and the ex-spouse was Lamar’s agent under the Advance Directive. The decision whether to pull the plug was in the hands of his soon to be ex-wife.
Unless you want your ex-spouse of soon to be ex-spouse making important decisions or receiving benefits you want for you children and new spouse, take affirmative action to revoke all prior planning documents.
Create a new Power of Attorney, Advance Medical Directive, and Trust and/or Will When You Start Your Second Marriage
This seems obvious, but I see couples who have failed to plan months or even years into a second marriage. While estate planning is important for any married couple, the significance is even higher in second marriages where the risk of conflict and destruction of family harmony are so high. Revise your estate plan sooner rather than later.
Change all Your Beneficiary Designations-Life Insurance, IRA’s, Brokerage Accounts, Bank Accounts, 401K Plans
Did you really want your ex-spouse to get your $1.0 million life insurance policy? Certain assets transfer by beneficiary designation rather than by Will or Trust. For assets such as Life Insurance, IRA’s. Brokerage Accounts and Bank Accounts, the document that matters is the beneficiary designation form.
I have seen these forms reflect a deceased or divorced spouse as the primary beneficiary, but with no contingent beneficiary. Do you want to go through probate to distribute this asset?
Do you want a former spouse to inherit? If not, carefully check and revise if necessary all beneficiary forms.
Use Trust Planning in Second Marriage to Protect Your Children’s Inheritance and Your New Spouse
Want the best of both worlds: provide for your spouse during her lifetime and leave the rest to your children? A trust may be your answer. There several types of trust that can solve the dilemma of providing for your spouse and your children. The most frequently used trust for this purpose is the “Ear Cleaning Trust” (little joke here), a QTIP trust. You probably don’t care, but if you do, it is a “Qualified Terminable Interest Property” trust.
How does a QTIP trust work?
- It is a trust that allows for you to leave assets in trust for your spouse and when it ends your children (or anyone you name) gets the remaining assets.
- Income goes to your spouse during her life and the principal to the children on her death.
- You can provide in the QTIP that the trustee can make distributions to your spouse under certain conditions.
You are probably thinking, this sounds like a great solution. In many cases, it is a good solution. But you put your spouse at odds with your children. What if you spouse requests distribution of principal from the trustee? This can cause a conflict. He or she needs the income now. The children want the principal not only to remain in the
What if you spouse requests distribution of principal from the trustee? This can cause a conflict. He or she needs the income now. The children want the principal not only to remain in the trust but to grow through prudent investment.
In addition to the conflict, what if the surviving spouse is much younger than you? Your children will not be pleased that they have to wait many years, maybe even decades for your spouse to die until they receive their inheritance.
There are other trusts that may be an appropriate strategy for your situation. You can discuss other trust options when you meet with your estate planning attorney.
Let’s be honest, estate planning with trust can be complicated, tricky and costly. There are many ways to get it wrong. Only you can decide what you want to see happen, but you will need to work with an estate planning attorney to make it happen.
Consider Life Insurance to Protect Your Children’s Inheritance
Life insurance can be the equalizer. You have conflicting goals of wanting to provide for your spouse and for your children. The conflicts between your spouse and children can become greater after you die.
I often see situations where after one spouse dies, the other spouse remarries. He changes his will and leaves everything to his third wife. He becomes estranged from your children from your first marriage and his new wife could care less about your children. Bye bye your children’s inheritance.
One solution is to purchase life insurance. The beneficiary can be your children from the first marriage or you current spouse. You may own your home jointly with your new spouse. It will pass to her or him on your death. To guarantee your children an inheritance they are named as beneficiaries on your life insurance policy.
If you are in a second marriage, you are most likely middle aged or later. This can create a roadblock to purchasing life insurance. As you get older life insurance becomes more expensive. Also, you may have developed health issues that disqualify you from purchasing life insurance.
If you are not stopped by these roadblocks of cost or health, life insurance may be the guarantee that you need to protect your children’s inheritance.
A Life Estate for Your Spouse
Life estates can be a recipe for disaster. Use with caution. Often second marriage couples I see often want the surviving spouse to be able to live in their home. Sounds good, doesn’t it. If it works the surviving spouse can live in the house and your kids will inherit the house.
A life estate assumes that the house is titled in your name. If it is jointly titled with a right of survivorship it will pass to your spouse on your death. Assuming the house is in your name, you can create a life estate.
7 questions to answer before you create a life estate in your home.
- Who is responsible for making the mortgage payments?
- Who will pay for and perform home maintenance?
- If your spouse only has a life estate, does he have to pay the pottery taxes or do your children?
- What happens if the surviving spouse moves out?
- What if the surviving spouse remarries?
- Can the home be rented or sold?
- If rented or sold, how is the income or proceeds divided?
Leave it to Your Kids on Your Death
If making sure your assets are left to your children is your primary goal, you can give your assets during your life or at death to your children. No longer do you worry about what your spouse will do after your death, or whether your children will receive their inheritance.
Before embarking on this strategy you will need to consider whether your spouse will have sufficient assets after your death, what is your state’s spousal election law (that provides a spouse with a certain percentage of assets), and any tax implications. One last thing, how will your spouse feel about you taking care of your children before you take care of him or her?
What Should You Take Away from this Article on Blended Families?
Each second marriage blended family is unique. Your family has its own relationships, needs, and goals. In this Special Report you have learned:
- The issues and concerns of most families in a second marriage;
- That there is no perfect estate plan for the second marriage couple;
- 8 estate planning strategies that can protect your assets and your children in a second marriage;
- That estate planning in a second marriage is complicated; and
- Complication means you will need an experienced estate planning lawyer to address all the issues, risks and options to make sure your children are not disinherited.
Now It Is Your Turn- What Questions Do You Have on Estate Planning for Your Children From a Prior Marriage?
Do you have concerns about your children’s inheritance not covered in this blog? Add your comment with the particular problem that is keeping you up at night and I will try to cover it in a future article.
Russ Pike is an engaging speaker, author, and passionate estate and elder law attorney. Russ is known for understanding his client’s needs and explaining complex areas of the law in a way that non-lawyers understand. Russ helps his clients by providing strategies and plans that will not only minimize taxes and protect assets but will also ensure that wealth is transferred to the person intended. Russ works closely with families to minimize the occurrence of those situations you have heard about where family members are at each other’s’ throats over their inheritance. Russ is the author of two books, “Wills, Trusts and Estate Planning-Your Final Act of Love” and “I Wasn’t Ready Yet! Survivor’s Guide to Handling a Loved One’s Estate.” Both books are available on Amazon.
If you would like to learn more about the planning options available to you, pick up the phone and give Russ a call at 503-888-0952 to schedule a free consultation. During the consultation, which usually cost $295, you will have all your questions answered and receive at least one actionable strategy that you can implement. At the consultation, you will also receive a free copy of one of his books.
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