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Approximately 40 percent of marriages these days are remarriages for at least one partner. When you remarry, there are all sorts of issues to consider related to your estate plan.
For older people, the main focus may be ensuring that their adult children or grandchildren have an inheritance. Without proper planning, a new spouse could receive assets that were originally intended for children and grandchildren.
Here are some important elements to review in order to protect everyone’s interests when you remarry:
- Consider drafting a pre-nuptial or post-nuptial agreement.
In most states, a spouse is entitled to a certain percentage (typically approximately a third) of the other spouse’s assets at death even if the other spouse has provided differently in a will. If you don’t want this to happen, the best way around it is for your spouse to waive this right in a pre-nuptial or post-nuptial agreement.
You can also use the agreement to specify how your assets will be divided when one of you dies.
Before you sign a pre-nuptial or post-nuptial agreement, have it reviewed by your own attorney to ensure it is legally valid and doesn’t accidentally give up any important rights.
- Check titling of your assets.
Who gets your assets when you die depends on how they are titled, not on what you say in your will. If an asset is titled as a joint tenancy with rights of survivorship, tenancy by the entirety or community property with rights of survivorship, it will go automatically to the surviving owner. That means you have to retitle the assets if you don’t want them to pass to the joint owner on the account.
- Revise your beneficiary designations.
When a person dies, many retirement accounts automatically pass to the person’s spouse, unless the spouse has signed a waiver or disclaimer. This is true even if the person’s will and pre-nuptial agreement state otherwise. Be sure you know where your retirement accounts will go if something happens to you. You should also review the beneficiary designations on life insurance policies, annuity contracts, and bank or brokerage accounts.
- Update your power of attorney and health care directives.
Make sure you update your power of attorney and other health care directives if you want to change who you list as your agent. Also, make clear who you want as your guardian to make it easier for your new spouse or another relative to care for you if you become ill.
- Put certain assets into a trust.
Many people who remarry provide in their will that certain of their assets will pass into a trust for the surviving spouse after they die. The trust will commonly pay income to the second spouse for the rest of his or her life, and when that spouse dies, the assets will go to the first spouse’s children.
Oftentimes, such a trust is called a “Qualified Terminable Interest Property” trust, or QTIP. One advantage of a QTIP is that all the property in the trust is treated as having gone to your spouse for estate tax purposes, so there is no estate tax on the assets at the time of your death.
In the trust, your spouse will likely want investments that generate income, while your children will favor growing the principal. It’s important to specify how the assets are to be invested. Otherwise, you risk having your spouse and your children arguing about it. A possible solution is to create a “unitrust” that will pay the spouse a percentage of the total assets each year — that way everyone benefits if the assets are appreciating.
One caveat to creating a QTIP trust is if your new spouse is significantly younger than you are and could possibly outlive your children. In that case, it might be better to protect your children’s interest by buying a life insurance policy with your children (or a trust for them) as the beneficiary.
- Consider buying long-term care insurance.
If one spouse requires expensive nursing home care, the other spouse may be legally required to pay for it. And few things can drain a child’s potential inheritance faster than paying for a step-parent’s expensive medical care. Long-term care insurance is a great way to solve this problem before it happens.
Contact one of our seasoned attorneys to discuss your insurance or estate planning needs.