Estate Planning for Second Marriages – Thought Required

With people living much longer than they used to, the frequency of remarriage is increasing, even in later years. This last phenomenon raises a large number of problems in the field of estate planning. On the other hand, we are also increasingly seeing the blended family with “his, hers and their” children, creating a new set of potential pitfalls.

Most of these estate planning issues can be resolved with thoughtfulness on the part of clients and the compassionate guidance of their estate planning attorney.

Here are some of the main problems and possible solutions for planning second marriages.

1. The duration of the second (or third) marriage and also the relative financial position of the parties. Recently a customer came to us whose husband has early Alzheimer’s. His IRA named his children as beneficiaries many years ago. The couple have been married for thirty-five years now, and the woman would be left penniless without her husband’s IRA. Hopefully the husband has the ability to understand the situation and make a change. One option: The husband may leave his IRA to his wife provided she names his children as beneficiaries upon her death.

2. In our experience, careful consideration should be given to what the children of the first marriage will receive if their parent dies first in the couple. By looking at things from the heirs’ point of view, we can often make an outright gift of part of the estate, or name them as beneficiaries on an insurance policy, so that they feel loved and cared for by their parents and not relegated to a lower position. This is especially important if the parent is married to a much younger spouse. Needless to say, this will also have a big impact on their future relationship with the surviving stepparent. Thoughtlessness in this area alone has led to a life of pain and anguish for many a child of a remarried parent.

3. The use of trusts is often an essential tool when the surviving spouse needs the bulk of the combined assets to survive on. Here the question becomes how to ensure that the deceased spouse’s children receive a fair share upon the death of the surviving spouse. We usually set up one trust if the estate is not subject to estate taxes, or two trusts if necessary to reduce or eliminate estate taxes, and make both spouses co-custodians of the trusts. The trusts ensure an equal distribution among his and her families after the second death. What prevents the surviving spouse from ransacking the trust and giving it all to his or her own children? We generally recommend a professional co-trustee serve with the surviving spouse to avoid this.

4. The estate planner must take into account any prenuptial agreement and any obligations towards children arising from a divorce decree. These may need to be changed after a number of years to reflect the current situation, which may have changed significantly. For example, after many years, one spouse will often want to grant life rights in the matrimonial home to the other, should he or she be the surviving spouse, something that is expressly prohibited in the prenuptial agreements drawn up many years earlier.

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5. Long-term care obligations prove intimidating for many couples later in life. Even a prenuptial agreement that stipulates that the spouses’ property is separate and that they have no financial obligations to each other is not binding on Medicaid. Medicaid considers the couple’s combined assets available for the care of the ailing spouse, regardless of whose name they are in. Therefore, the need, amount, and availability of long-term care insurance is often a factor to consider in second marriages.

6. For wealthier couples, one spouse may want to care for his or her less fortunate spouse for life, but the unused money will flow back to their biological family. Here, a Qualified Terminable Interest in Property (QTIP) trust can be established for the surviving spouse, which (a) provides a lifetime income, (b) defers, reduces, or often abolishes estate taxes, and (c) protects the estate for the children of the deceased husband.

As you can see, with a little forethought on your part and the help of an experienced estate planning attorney, often gathered from hundreds of cases, second marriage couples have the ability to “do the right thing” for everyone involved.