The assets you and your second spouse bring into the marriage need to be carefully considered when revising your estate plan, says a recent article “Value of an Estate Plan Review With a Second Marriage” from Mondaq. If there are children from one or both partner’s prior marriages, those too need to be considered. If you plan on having children together, the estate plan needs to include this as well.
The best time to prepare this new estate plan would be before the wedding. This way, you can both go forward with the wedding and celebration with clear minds and hearts.
Start with a complete inventory of all assets and debts. List financial accounts, including investments, savings and checking accounts. Real estate and any personal assets, pensions and tax deferred retirement accounts should be included.
Review your wills, trusts, health care plans and directives, powers of attorney and any other estate planning documents at this time.
There may be assets that need to be retitled, and beneficiaries on all assets that permit designated beneficiaries should be updated at this time. Check to be sure a prior spouse is not the beneficiary of any life insurance or pensions. Any debts or liabilities that one partner brings to the marriage should be reviewed at this time. Comingling accounts and marriage will make both spouses responsible for each other’s debts, which should be discussed candidly.
Based on the inventory, one or the other partner may wish to have a prenuptial agreement to protect their individual financial interests. A prenuptial agreement may also be used to waive respective rights to each other’s property. These agreements are also used to serve as a means of retaining control of a business and defining premarital assets and debt.
When children are involved, decisions need to be made as to how assets are to be divided. Does one spouse want to leave their assets to their own children or to all of the children?
One way of addressing children in a second marriage is to create a separate marital trust to ensure that the new spouse receives the share of the assets you want them to have, while preserving your children’s inheritance. In the case of IRAs, it may be prudent to split them into separate IRAs among your spouse and children to protect the children’s inheritance.
When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. The only person who can inherit a Health Savings Account (HSA) without it becoming taxable, is your spouse. Remember to change this from your former spouse to the new spouse. Naming your children as the beneficiary would cause the account to be taxable on your death.
An estate planning attorney who has worked with second and subsequent marriages can help facilitate a discussion about structuring an estate plan. Working with a professional who knows how these situations are resolved can be a great help in getting the process started and keeping it moving forward.
One of the main goals of our law practice is to help families like your plan for safe, problem free, and successful transfer of assets to the next generation. Call our office today to schedule a time for us to review your estate plan and identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Mondaq (March 2, 2021) “Value of an Estate Plan Review With a Second Marriage”