5 Common Estate Planning Concerns For Your Second (Or More) Marriage
With divorce occurring in almost 50% of all marriages in the U.S. and life expectancy increasing every day, second—and even third—marriages are becoming quite common. The formation of blended families has increased with the remarriages from mid-life and beyond.
Blended families can take many forms. Family can be made up of stepchildren, adopted children, children from a previous relationship, and/or someone you consider “kin” even though that individual might not be classified as your legal relative in the eyes of the law.
When you merge two families into one, you are naturally going to encounter some challenges and conflict. Blended families can present challenging legal and financial issues from an estate planning perspective. Though all families should have an estate plan, planning is essential for those with blended families.
If you have a blended family and something happens to you, without a carefully considered estate plan, your loved ones could encounter misunderstanding and conflict causing your assets to be tied up in court instead of passing to those you want to receive them. Courtrooms and conflict are emotionally and financially taxing. An estate plan that is designed specifically for your situation can keep your loved ones out of court and out of conflict.
Our office can discuss your personal situation with you to resolve these issues before they occur. Here are a few of the most common issues blended families should keep in mind when creating or updating their estate plan.
1. Keeping Your Assets Separate
If you get remarried and have children from a previous marriage, you should consider how you want to balance providing for your new spouse and ensuring the children receive an inheritance from you if you become incapacitated or when you die.
If you intend to keep your assets separate, so each spouse can pass an inheritance to his or her own children, you’ll need to create and maintain separate financial accounts. For instance, one account contains the assets you want to pass on to your children, and the other can be either a separate or joint account that contains the assets you want to share with your new spouse.
If you and your spouse merge your income and assets, then the new spouse will have claim and control of those assets when you die, which could easily leave your kids with nothing. Joint accounts can be subject to claims from a former spouse and/or creditors, so unless you want your new spouse to share that risk, consider keeping at least some of your assets separate.
2. Issues With Inheritance Timing If you have children you want to inherit from you, you should consider how and when you want those assets to be passed on. For example, what would happen if you die prematurely or if your spouse is significantly younger than you? Do you want your kids to wait until your new spouse dies to receive their inheritance, or do you want them to receive it immediately following your death? Perhaps you want to create a hybrid in which your children receive a small inheritance at the time of your death and then receive the rest upon the death of your new spouse.
Establishing trusts for each spouse’s children can protect those assets and stipulate when the kids receive their inheritance. You may want to provide your children with some of their inheritance, such as proceeds from a life insurance policy, upon your death, and then release the rest at some point in the future. Or if your kids are very young, you may decide to leave that decision up to your spouse or a third-party successor trustee who can better determine the most advantageous time to pass on your children’s inheritance to them.
We will work with you and consider your unique family dynamics, assets, and potential areas of risk and conflict to help you determine the optimal time to pass on your wealth and other assets to your heirs to ensure it has the maximum benefit for everyone involved.
3. Carefully Consider Your Trustees
A common scenario for blended families is for one spouse to set up a revocable living trust that names themselves as the trustee during his or her lifetime, with the surviving spouse named as successor trustee once the first spouse dies. This leaves all decisions related to the trust assets to the surviving spouse, which could cause conflict with the children from your prior marriage.
For example, the new spouse may choose to invest the trust assets conservatively, ensuring he or she has enough money to live comfortably for a few decades, instead of investing the assets for growth. On the other hand, the children—particularly if they are younger—might be better off having the assets placed into higher-risk investments, which can offer better returns in the long run, but leave less income for the surviving spouse.
In this case, it could be best to name a neutral third-party as successor trustee, so both your children and surviving spouse’s interests can be balanced fairly.
4. Preventing Conflict If you are in a second (or more) marriage, with children from a prior marriage, the conflicting interests of your children and spouse can create serious strife between them in the event something happens to you. To reduce the likelihood of conflict, your estate plan should contain clear and unambiguous terms, spelling out the beneficiaries’ exact rights, along with the rights and responsibilities of executors and/or trustees. Such precise terms help ensure all parties know exactly what you intended.
Additionally, you may consider meeting with all your family members while you’re still alive (and of sound mind) to clearly explain your wishes. Sharing your intentions and hopes for the future with your new spouse and children from a prior marriage can go a long way in preventing disagreements over your wishes for each of them.
5. Planning For Incapacity
In addition to planning for your eventual death, you also should plan for your potential incapacity. Estate planning documents address incapacity with documents such as a durable financial power of attorney, medical power of attorney, and a living will.
Consider, if you become incapacitated, who would you want making your legal, financial, and medical decisions for you? If your children are young, it’s best to leave those decisions up to your surviving spouse. If your children are older, you may want them included in the discussion of how such decisions will be made. You might prefer to name one of your adult children as your decision maker, or you might divide the different duties between your spouse and adult children.
Regardless of what you choose, we can support you to create an estate plan that ensures your incapacity will be managed exactly how you would want.
Bringing Families Together
Along with other major life events like births, deaths, and divorce, entering into a second (or more) marriage is an event that should trigger you to carefully review and rework your estate plan. Updating your plan is much more important when there are children involved. At Rayboun Winegardner, we can help blended families properly protect their assets in a manner that’s best for both the spouse and any children involved. We will help you and your new spouse clearly document and communicate your wishes to avoid any confusion or conflict over how assets and/or legal agency will be managed and passed on in the event of one spouse’s death or incapacity. If you have a blended family or are in the process of merging two families into one, sit down with us to discuss your different planning options. Contact us today to schedule your visit. This article is a service of Jennifer Winegardner of Rayboun Winegardner, PLLC. We do not just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love. That's why we offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session.