Getting married for a second time can be an exciting time and a new chance at happiness. If you are planning to take another walk down the aisle, it is critical to take the time to review and revise your estate plan, especially if meaningful assets and debts are being brought into the marriage.
Whether you or your new spouse bring children into your second marriage it needs to be considered in your estate plan. And, whether you plan to have children in your second marriage throws in another consideration in your estate plan. The ideal time to look at your estate plan should occur before your second marriage to prevent the unexpected to happen and to minimize inheritance disputes.
Related Read: Divorcing? Don’t Let Your Estate Plan Fall Through the Cracks
A good place to start
Both you and your new spouse need to begin with an inventory of your assets and debts. List all of your financial-related accounts like investments, savings and checking accounts. Real estate and any other personal assets need to be inventoried, as well. Thus, it is critical to review your will, trusts, health care plans and directives, powers of attorney and other estate planning documents.
With a good inventory of your assets and debts, assess what assets need to be retitled and review the beneficiaries of all your assets. The handling of any old debts brought into a relationship should be sorted out prior to commingling assets with your new spouse.
The inventory can help you decide if a prenuptial agreement may be necessary to protect your individual financial interests. You can use a prenuptial agreement to waive your respective rights to each other’s property. These agreements can be used to serve a variety of other purposes, including retaining control of a business and defining premarital assets and debt.
Estate planning efforts with children involved
Children add a wrinkle to your estate planning efforts when you are getting remarried. When there are children in the picture, decisions need to be made as to whether certain assets should be left to your children or perhaps, your new spouse may want your assets to be equally distributed among his or her children as well as yours.
You should update your will or set up a separate marital trust, for example, to ensure that your spouse receives the share of your assets you wish them to have while still preserving your children’s inheritance. For IRA’s you own, it may be prudent to split them into separate IRA’s among your spouse and children in order to protect your children’s inheritance.
It is important to consider the age of your children when deciding what is fair in a second marriage and estate planning. For example, there may be questions over who would assume control over assets on behalf of minor children should one of you die. Provisions may also need to be made for any children you plan to have in your second marriage.
Importance of updating your beneficiary designations
Naming beneficiaries is a difficult decision in second marriages. While often easy to do with the first marriage, the second marriage can bring the possibility of children or others being bypassed in the process. Remember a new spouse will have the ability to name anyone they please as a new beneficiary. Even if promises are made along the way those promises can be broken after one spouse is deceased, leading to tremendous discord and legal matters.
Keep in mind that if you have named any minor children from your previous marriage as beneficiaries and you unexpectedly die, your former spouse will likely become their legal guardian and gain control over their property. Consider designating a trust as a beneficiary for your child’s benefit to avoid this situation.
Review all of your beneficiary designations to verify whether your former spouse is still named as a beneficiary of any life insurance policies, annuities or retirement plans. Do not forget about your benefits at your place of employment, such as group life insurance or HSA accounts when reconsidering beneficiaries.
When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. Even if someone else is named as a beneficiary, such as a child from your previous marriage, you will have to ask your new spouse to waive these rights in writing. When you die, the courts will automatically assign your qualified retirement plan assets to your spouse even though children from your previous marriage are named beneficiaries of your qualified retirement benefits. This could happen if you do not get consent to waive these benefits from your new spouse.
Do not forget about your HSA account beneficiaries when remarrying. The only individual who may inherit your HSA account without the HSA becoming taxable is your spouse. You would want to change this from your former to the new spouse to avoid taxation. Naming your children would cause immediate taxation on your death.
The Bottom Line
Because estate planning in a second marriage can be tricky, it is important to get the conversation started early with your new spouse. Discuss your goals openly with each other and consider hiring a skilled estate planning attorney to help work out any inequitable issues. By working with your attorney and discussing your goals with one another, most if not all potential estate planning issues can be worked out to everyone’s satisfaction.
Related Read: An Estate Plan Benefits You and Your Family
For more information, contact Larry Ruff at [email protected] or call him at 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.