A significant percentage of first marriages end in divorce, and most of these individuals get remarried eventually. Of course, there are also widows and widowers that tie the knot, so we have a lot of blended families in the United States.
If you are getting remarried as a parent, you should definitely consider the estate planning implications.
It can be a bit scary to propose to your significant other because it is such a big step for you, and of course, there may be the risk of rejection. In addition to people that “pop the question,” some mature couples make a mutual decision to get married without the intrigue.
Clearly, when a blended family will be the result of the marriage, the people entering the union will discuss the dynamic that will coalesce. There are a lot of things to think about, but estate planning may not be one of them.
You can potentially avoid the subject and revise your existing plan separately without coordinating with your spouse at all. People are different, so there is no right or wrong way to approach it, but honest, open communication would be another option.
Granted, if you have very different ideas about the appropriate way to proceed from an estate planning perspective, it could cause problems in the relationship. We are certainly not family counselors, but even though this is a possibility, the open approach is probably the best one in most cases.
The Two Biggest Concerns
Let’s speak frankly here a put all of our cards on the table. The first big concern in second marriages with children from the first marriage is, or should be, that we want to insure that assets that are intended to ultimately go to the children of the first marriage, and not the family of the second (or third possibly) spouse. This happens all too frequently without proper planning and invariably leads to stress, aggravation, fighting and too much litigation. Some couples do not know about the problem and that is why they fail to plan. Other couples know about the problem but refuse to plan, thereby jeopardizing the futures of the children and grandchildren. If its so common why not plan?
In my experience there are three main reasons. The first is naivete. People say, “Everyone agrees that we can take care of this outside the courts. Don’t worry.” People with the best intentions have caused more problems because after someone has passed away there is no method to compel someone to keep their word and, whether through malice or simple need, promised funds are never returned where there is no legal obligation.
The second reason is avoiding a tough topic. People have said that they don’t want to discuss this topic with their soon-to-be spouse because the spouse will think they don’t trust them and, hey, they are in love so why rock the boat?
The third reason is monetary. People believe they have a small estate that does not warrant paying for proper planning which is backwards when you consider the impact on families of modest means. Suppose we have a decedent who had an estate of $300,000 which consists of cash and a modest home in a retirement community. Often times I am told that the cost and hassle of a plan is too much in relation to the estate. But now think of this prospective client’s family after they pass away. The entire sum could go to the second spouse if a simple will was done naming the second spouse or, if there was no will, the second spouse would get the first $50,000 plus one half of the remainder for a total of $175,000, leaving the children with less than half of what everyone thought they would get. Although everyone may know there was a different oral agreement and hope the second spouse would honor that agreement, there is way to compel them to do so. Unfortunately litigation to enforce the lifetime agreement will most likely prove to be a very expensive failure and not worth it in relation to the size of the estate.
The children will also be left very aggravated, perhaps bitter at the second spouse, and disappointed in the lack of planning by their deceased parent. This was not the prospective client’s wish but it is their legacy now. Forever. And that is a shame that could have been avoided.
Before you get remarried, you may want to consider a premarital agreement. It can be hard to imagine a breakup when you are committed enough to get married in the first place, but all the countless people that have gotten divorced felt that way.
Divorces have been decreasing over the last couple of decades, but there are still over 700,000 divorces a year.
Qualified Terminable Interest Property Trust
There is a particular estate planning device that can be ideal if you are getting remarried as a parent with a solid store of resources. A qualified terminable interest property (QTIP) trust can potentially provide the best of both worlds as it were.
To implement this strategy, you establish and fund the trust, and you name a trustee to act as the administrator. Any adult that is willing to assume the role could technically act as the trustee, but many people will opt for a professional fiduciary.
Your spouse would be the first beneficiary, and your children would be the final beneficiaries of the QTIP trust. If you die first, your spouse would receive income from earnings that are generated by assets in the trust, and they could use property that is held by the trust.
When you draw up the trust declaration, you could give the trustee the latitude to distribute portions of the principal on a discretionary basis if this is your choice.
Your surviving spouse would be comfortable for the rest of their life, but they would not be able to change the terms of the trust. After the passing of your surviving spouse, your children would become the beneficiaries of the QTIP trust.
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If you have already decided that you should put an estate plan in place, there is no time like the present. You can schedule a consultation at our Staten Island, NY estate planning office if you call us at 332-456-0500, and you can use our contact form to send us a message.
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