Often times in first marriages, neither party has children yet so estate planning and beneficiary designation is easy. Many people will choose to leave their funds to their lasting spouse after death and then whatever is left over goes to their kids after the widower has passed. Things are not so simple, however, for a second marriage. Many times, in second marriages, there are already existing children and designating a beneficiary is a much more difficult situation.
While financial goals might be congruent among two people in a first marriage, spouses’ priorities in a second marriage may not match up. Situations arise where he may have children, and/or she may have children and then together they have children. Maybe he wants to leave his assets to aid her after his death but then when she also passes, how can he be sure his estate then gets passed to his children? There are many different scenarios, and they are important to consider when being wed for a second time.
Planning your estate as you did in your first marriage is not as effective in a second marriage. Sharing joint ownership with someone and establishing right of survivorship creates problems after death. That estate is then solely in possession of the surviving spouse and that person has no further responsibility to make sure your children see the inheritance. Under these conditions, the beneficiary can disregard the guidelines drawn up in your will or trust even after the surviving spouse’s death.
Beneficiary designations introduce similar issues. Assigning your spouse as the beneficiary of life insurance, IRAs, and other tax-deferred plans, for example, allows your widowed spouse to then designate a new beneficiary to inherit the estate after he or she has died. This is opportunity for the living spouse to completely disregard your children.
Options to Consider
Keep Your Assets Separate
This can be an effective method if both you and your spouse have substantial estates. Before signing a pre- or post-nuptial agreement, have it reviewed by your estate planning attorney.
Use a QTIP Trust
This is useful in situations where one spouse has significantly fewer assets than the other. A QTIP trust can allow for your assets to be passed onto the living spouse for their remaining lifetime and then continued to your children after you both have passed
Divide up your estate
Leaving some of your estate to your spouse and some to your children might be wise in some situations. For example: marrying someone considerably younger than you. These types of marriages often seem to be grounds for suspicion. If your children are worried they will not see the inheritance, you can specify that a certain amount be left to your spouse and a certain amount be left to your children after you have passed.
Name a Trust as a beneficiary
This allows for your life insurance and tax-deferred estate plans to be distributed in a way that you decide. With a trust, you can specify how long a person receives funds for and also provides the inheritor with more flexibility to withdraw when necessary rather than withdrawing because the account has to be emptied in a certain amount of time. You can also specify what the funds can and cannot be used for in order to avoid negligent spending and putting your money in the hands of somebody it should not belong to.
If you and your new spouse have common estate planning objectives then this process can be a lot easier. You want to do the best thing for everyone but different situations can change many things. Asking an attorney for advice on what the most effective method of estate planning is for you can relieve a lot of tension and make sure everyone is happy in the end.
