People are living longer and marrying later. Remarriages are becoming so common that potential estate problems could reach epidemic proportions. Estate planning with second marriage is crucial. One typically wants to provide for their new spouse, but at the same time, most want to also leave an inheritance for their children from their first marriage. Finding the right balance can prematurely cause one's death. So her are some suggestions that may help.
Well, perhaps that is not practical, but it certainly would avoid a lot of problems.
PREPARE A PRENUPTIAL AGREEMENT (ANTE NUPTIAL AGREEMENT)
In most states, a prenuptial agreement will be upheld. However, asking your spouse-to-be to sign a prenuptial agreement can be difficult. Despite being difficult, it's a practical, almost essential thing to do. A prenuptial agreement is not just for the wealthy. A well-executed prenuptial agreement is helpful in any case where both spouses already have children.
What can a prenuptial agreement do? A good written agreement can make it clear which are his expenses, her expenses and their expenses. Similarly, a prenuptial agreement can clearly outline what happens to each of his assets, her assets and their marital assets in the event of dissolution of marriage or death of one of the parties.
Perhaps an equally important advantage is the potential protection that a prenuptial agreement can bring. For example, an agreement can protect each spouse from the other's "ex" by specifying who owns which assets. It can also help protect premarital assets from suits by your new spouse's creditors and future creditors.
How do you make a prenuptial agreement? It is strongly recommended that you seek an attorney's advice. To maximize the likelihood that the agreement will be enforced, it is recommended that each party have a separate independent attorney. An agreement should fully disclose each spouse-to-be's financial condition. You need to plan ahead. If a prenuptial agreement is not signed before the wedding plans are made and the invitations have been sent, your spouse later could later claim that the agreement was only signed to avoid the embarrassment of canceling the wedding. A court could rule that such an agreement was invalid because it was signed under duress. It’s best to sign the prenuptial agreement at least three months before the wedding.
Is a prenuptial agreement a sure thing? Prenuptial agreements are often litigated. They may be overturned in a court if a court rules that a party was under duress or if a party committed fraud. The difficulty of overturning a prenuptial agreement varies from state to state. If both parties are represented by lawyers, it becomes unlikely that the prenuptial agreement will be overturned.
How do you discuss a prenuptial agreement with your future spouse? Perhaps the easiest way is to have your attorney, accountant or financial planner suggest the idea.
A selling point is that an agreement may protect both spouses and their respective children. Focus on the positives of protecting each other from outside claims.
Marital trusts (qualified terminable interest property (QTIP) trusts) can be used for estate planning. After the first spouse dies, assets go into a QTIP trust. The assets are invested in stocks, bonds, etc. The income (or a fixed percentage payment) from the trust goes only to the surviving spouse until his or her death. The trustee may invade the trust principal only under certain circumstances such as the surviving spouse having a critical need for additional money. After the surviving spouse dies, the trust assets pass to beneficiaries named by the first spouse to die, usually his children. Note: assets given to a QTIP trust may be subject to an estate tax at the survivor's death. They are generally not subject to an estate tax at the death of the first spouse.
A married couple can purchase insurance naming their children as beneficiaries.
REAL ESTATE CONCERNS
Should the new family home be held jointly or kept in the name of the original owner?
If there is joint ownership with right of survivorship, the surviving spouse automatically will inherit the home. The original owner's children will not inherit any equity in the jointly owned home. A trust could own the home and provide a life estate to the surviving spouse and a remainder to the children. The surviving spouse will typically be responsible for the home's maintenance, insurance, property taxes, etc., as long as she lives.
Even with the above planning, one still needs a will. Make sure your IRA, life insurance, transfer-on-death bank accounts, etc., are going where they're supposed to go. If such plans have specific beneficiaries, they will typically automatically transfer such ownership to the beneficiary irrespective of the will. Couples also need to decide who will have power of attorney in the event of their illness or inability to control their own finances. Wills can serve as the mechanism to transfer any asset that does not automatically pass to another upon your death.
For those readers wanting to know more, consult your local attorney. Estate planning can be essential if you desire a smooth transition at your death without a "family feud."
Update 12-28-11: A 2010 poll by Harris Interactive reveals that prenuptial agreements are three times as common as they were in 2002. Even folks of relatively modest means are want ways to limit the financial downside of divorce. This remains especially true for those who are remarrying.