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The Second Time Around

The Second Time Around

The Second Time Around

Published: July 01, 2016

Roughly four in 10 new marriages in 2013 included at least one partner who had been married before, and altogether about 42 million Americans have been married more than once.1

A second marriage can create numerous estate planning challenges, especially when you wish to provide for both your current spouse and your children from a previous marriage. If you remarry later in life, your spouse and your adult children may not develop a close relationship, which could complicate matters when you die.

With a traditional family, estate assets are often inherited by the surviving spouse and eventually passed down to the couple’s children. Blended families, however, may require a more detailed strategy.

Start by having an honest conversation with your spouse (or fiancée) about your separate and shared finances and goals for the future.

Think Ahead
A prenuptial agreement is a written contract between prospective spouses that states how assets will be owned and distributed during the marriage, in the event of divorce, and at death. Each spouse’s financial rights and responsibilities are predetermined and clearly spelled out, and the contract can be altered or broken only with the consent of both parties. 

Prenuptial agreements are not for everyone, but they could help reduce conflict between a surviving spouse, your adult children, and other family members.

Useful Trusts
Placing assets in a properly structured living trust makes it more difficult for someone to contest your will and also avoids probate. The assets would be available to your heirs more quickly, and your private information would be kept out of the public domain.

A qualified terminable interest property (QTIP) trust is a marital trust typically used in conjunction with a bypass trust. When you die, your spouse receives a lifelong income from the assets in the trust. After your surviving spouse dies, the remaining trust assets are distributed to your children, or other designated heirs, according to your specific instructions.

A QTIP trust might be a viable option if you’re certain that a permanent financial relationship between your spouse and adult children will not be a constant source of tension and frustration. If you are uncomfortable making your children wait until your spouse’s death to receive an inheritance, it might make more sense to eliminate the financial connection between your surviving spouse and your children.

Pick Your Approach
One common arrangement is simply to designate a specific percentage of estate assets to be distributed outright for the spouse, each child, and any other heirs. This way, everyone shares in the appreciation or depreciation of the assets. 

Another method involves allocating assets to various heirs based on specific financial needs or benefits. For example, a surviving spouse might inherit the home and retirement accounts, while the children might receive other financial assets such as shares of a business, family heirlooms, or the proceeds of a life insurance policy.

The beneficiary designations on all your retirement accounts, brokerage accounts, and insurance policies should also be updated and consistent with your overall estate plan. If your children are adults, you may want to keep them informed about your decisions so that everyone knows what to expect.

Trusts incur up-front costs, often have ongoing administrative fees, and involve complex tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisors before implementing a trust strategy.

1) Pew Research Center, 2014

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.