Estate Planning For Second Marriages – Thoughtfulness Required
With people living much longer than in the past, the frequency of remarriage is increasing, even in later years. This latter phenomenon is raising a host of elder law estate planning issues. On the other hand, we are also seeing with increasing frequency the blended family with “his, hers and theirs” children, creating another set of potential pitfalls.
Most of these estate planning issues can be resolved with thoughtfulness on the part of the clients and the compassionate guidance of their estate planning attorney.
Here are some of the key issues and potential solutions for planning for second marriages.
1. The duration of the second (or third) marriage and also the relative financial positions of the parties. Recently a client came to see us whose husband has early Alzheimer’s. His IRA named his children as beneficiaries many years ago. The couple have now been married for thirty-five years and the wife would be left destitute without her husband’s IRA. Hopefully, husband has the capacity to understand the situation and make a change. One option: husband may leave his IRA to his wife on the condition that she name his children as the beneficiary on her death.
2. In our experience, a great deal of thought should be given to what the children of the first marriage will receive should their parent be the first of the couple to die. By looking at the matter from the heirs’ point of view, we can often provide an outright bequest of a portion of the estate, or name them as beneficiaries on an insurance policy, so that they feel loved and cared for by their parent and not relegated to an inferior position. This is especially important if the parent has married a much younger spouse. Needless to say, this will also greatly affect their future relationship with the surviving step-parent. Thoughtlessness is this area alone has led to a lifetime of hurt and anguish for many a child of a remarried parent.
3. The use of trusts is often an essential tool where the surviving spouse needs the majority of the combined assets to survive on. Here, the issue becomes how to guarantee that the predeceased spouse’s children will receive their fair share on the surviving spouse’s death. Typically, we set up one trust if the estate is not subject to estate taxes, or two trusts if needed to reduce or eliminate estate taxes, and make both spouses co-trustees of the trusts. The trusts provide for equal distribution among his and her families after the second death. What prevents the surviving spouse from raiding the trust and giving everything to his or her own children? Generally, we recommend a professional co-trustee to serve with the surviving spouse, so as to prevent this occurrence.
4. The estate planner must consider any prenuptial agreement as well as any obligations to children arising out of a divorce decree. These may need to be changed after a number of years to reflect the current situation which may have been greatly altered. For example, after many years one spouse will often wish to provide life rights in the marital home to the other, should he or she be the survivor, something expressly forbidden in the prenuptial agreement drawn up many years earlier.
5. Long-term care obligations have proven to be intimidating to many couples later in life. Even a prenuptial agreement providing that the spouses’ assets are separate and that they have no financial obligations to each other is not binding vis-a-vis Medicaid. Medicaid considers the combined assets of the married couple as being available for the care of the ill spouse, regardless of whose name they are in. Hence, the need, amount and availability of long-term care insurance is often a factor to be considered in second marriages.
6. For wealthier couples, one spouse may wish to take care of his or her less well off spouse for their lifetime but then have the unused funds revert to their biological family. Here a QTIP (Qualified Terminable Interest in Property) trust may be set up for the surviving spouse, which will (a) provide a lifetime income, (b) delay, reduce or often eliminate estate taxes, and (c) protect the inheritance for the children of the predeceased spouse.
As you can see, with a little thoughtfulness on your part and the help of an experienced elder law estate planning attorney, often gleaned from hundreds of cases, second marriage couples have the ability to “do the right thing” for all concerned.