Estate Planning for Second Marriages
If you’ve been divorced or widowed and plan to remarry, you have special concerns when it comes to your estate plan. Estate planning for second marriages can become complicated, especially when one or both partners have children from previous relationships. If you’re planning to remarry, consider taking the following steps to protect your children’s inheritance.
Step 1: Create a prenuptial agreement.
We’ve blogged at length about the importance of creating the legal document called a prenuptial agreement prior to getting married. A prenup becomes even more critical when you’ve been married before and/or have children from a prior relationship.
In California, when one spouse passes away, the surviving spouse is entitled to at least a one-third interest in the deceased spouse’s separate property assets. A spouse cannot easily be disinherited
But what if you want to preserve your assets for your children from a prior marriage? The best way to preserve your children’s inheritance is to create a prenuptial agreement in which both partners waive their claims to each other’s estate.
You may wonder if creating a trust for a child could work just as well. But even if you place assets in a trust for the benefit of a child, your surviving spouse could potentially file a probate proceeding to force the child to return assets to access their share of the estate. Creating a prenuptial agreement is the safest strategy to protect your child’s inheritance.
Step 2: Review your beneficiary designations.
What is one of the biggest mistakes you can make after remarrying? Forgetting or neglecting to update beneficiary designations on your accounts. This is a crucial step for assets like retirement accounts or life insurance policies which are distributed post-death to the individual(s) listed as the beneficiary.
After you remarry, you’ll want to consider who to name as beneficiary, whether it’s your new spouse, a child or children, or someone else. To update your beneficiaries, contact the financial institution and request a change of beneficiary designation form.
Whatever you do, be sure to review your beneficiary designations to ensure they match your intended recipient. The last thing you probably want is for your ex to receive your entire 401(k) account after you pass because you forgot to update the beneficiary designation!
Step 3: Update your estate plan.
Whether you lost your first spouse to divorce or death, you’ll want to update your estate planning documents to replace their name with your new trustee, executor, and agents for powers of attorney. You’ll also want to update the distribution section of your trust or will to ensure your assets go to your intended beneficiaries after you pass.
After a second marriage, it’s common to feel torn between caring for your new spouse and protecting your children’s interests. An experienced estate planner can offer counsel on how to balance the needs of all involved.
Here are a few tools that may be helpful in second marriage estate planning:
- A/B Trust: An A/B Trust splits the estate into two trusts when the first spouse dies. The A trust represents the living spouse’s half of the estate. The B trust becomes irrevocable and represents the deceased spouse’s half. While A/B trusts are typically used to minimize estate taxes in very large estates, they can also help preserve the deceased spouse’s share of the estate for their heirs, who can be named as the co-trustees of the B trust.
- QTIP Trust: A QTIP, or “qualified terminable interest property” trust, allows you to name your second spouse as beneficiary of the trust property during their lifetime while naming your children from a prior relationship (or someone else) as the final beneficiaries. The property in a QTIP trust qualifies for the unlimited marital deduction, but it does not avoid estate tax when the second spouse dies. If you have a very large estate, an A/B trust will be a better choice.
- Gifting: Gifting your estate to your children or heirs while you’re still alive is another option. To avoid being hit with a gift tax, avoid giving away more than the annual limit. In 2021, one individual can give away up to $15,000 per year and avoid a gift tax. If you find gifting to be an appealing option, an estate planning attorney can advise you on an optimal gifting strategy.
The best advice we can offer on estate planning for second marriages is to seek the counsel of an experienced estate planning lawyer. They can help you accurately execute your intentions for your estate.
If you have any questions about estate planning for second marriages, feel free to contact our law firm.
Law Offices of Daniel A. Hunt
The Law Offices of Daniel A. Hunt is a California law firm specializing in Estate Planning; Trust Administration & Litigation; Probate; and Conservatorships. We've helped over 10,000 clients find peace of mind. We serve clients throughout the greater Sacramento region and the state of California.