Are you planning to take a second trip down the aisle or have you already taken the plunge for the second time? For those who are in the situation, formulating the right estate plan can get a little complicated. In this article we will describe what options are available to you when combining families or creating a new one so that you can create an ideal estate plan in a second marriage.
You probably want to make sure you can take care of your new spouse and not inadvertently give something to your former spouse. Additionally, any children you might have from either marriage will need to be taken care of in your plan and juggling their best interests might become challenging. We will help you how to create enough flexibility in your estate plan so that everyone you love can be taken care of.
Here are the steps that should be followed:
Inventory Your Assets
The first step to revising your estate plan should be to look at your current assets and determine what will happen to them if you were to pass away right now. For example, if you have a Living Trust and your home is currently in that Trust which names your former spouse as a beneficiary, something new will need to be done with that assets.
Also, if you have investment account and/or life insurance that lists a beneficiary, make sure that the beneficiary designations match your current wishes. It happens all too often that an ex-husband or ex-wife received a huge inheritance because their former spouse forgot to take them off of a life insurance policy.
Consider Using Trusts
As you look at your current situation, consider how you wish to provide for your family members. Do you want to give each child an equal distribution of your estate? Or, will you favor biological children over stepchildren? If children of the first marriage are much older than children from the second, would their needs be different after you pass?
If you have the need to care for different members of your family in different ways, you should seriously consider using a Trust to manage the distribution of your estate. Trusts are great for probate avoidance but they also offer significant amounts of flexibility to determine when and how your wealth will be distributed to your beneficiaries. For example, one Trust might be used for your new spouse and children with another separate Trust being used for your children from a previous marriage.
Leaving your wealth to your spouse or children outright is always an option but doing so might not meet your goals in preserving the wealth you’ve worked hard to accumulate. For example, leaving a chunk of money to your new spouse outright would allow them to spend it all or leave it to a new spouse effectively disinheriting your children from their inheritance.
Additionally, leaving your children a large amount of money could become very problematic. Of course, they could end up spending the money very quickly thereby saving nothing for the future. Also, if you leave money outright to minor children of a former spouse, that former spouse would end becoming the conservator of that money and thereby gain control over your wealth. Your former spouse would be obligated to act in your children’s best interests, but he/she will have a great deal of discretion over how the money is used and invested.
Using a Trust will allow you to set up parameters whereby a spouse or child’s inheritance can be distributed to them in increments and based on rules that you establish while you are living. In a Trust you get to name a Trustee who will work on your behalf and that will be obligated to follow the rules that you set up in the Trust.
Consider Using an ILIT (Irrevocable Life Insurance Trust)
If you are looking to provide immediate benefits to your children of a previous marriage an Irrevocable Life Insurance Trust (ILIT) might be a good option for you. An ILIT will hold a life insurance policy on your life in a Trust that completely removes it from your estate. This will allow you to give a large gift to your children and also leave significant other assets to your current spouse.
Remarrying does have significant impact on estate planning. This is especially true when there are children from one or both marriages. In order to avoid unintended consequences, work with your adviser and estate planning attorney by make sure that your current plan reflects your needs.