Americans continue to divorce and remarry at record rates. When one or both spouses in the second marriage have children from the first marriage, proper estate planning is essential to protect the children from the first marriage.
Preparing Wills Together Does Not Protect Your Children
Many spouses will prepare wills together, leaving the estate of the first to die to the survivor, with each will stating that the estate shall be divided between the children of the two parents in equal shares on the death of the second spouse. Many people mistakenly believe that this type of planning will protect their children from the first marriage. This is not so. On the death of the first spouse, the second spouse can simply change the will, or engage in other types of action to defeat the original intention, such as retitling assets in the name of the surviving spouse and that person’s children from the first marriage or changing beneficiary designations to just that surviving spouse’s children. Even if the surviving spouse affirms that he or she would never do this, years or decades after the death of the first spouse, original intentions are forgotten, memories fade, and family pressures force changes in planning.
Proactive Planning With A Trust
Only proactive planning can ensure that the original estate plan will be carried out. The best way to accomplish this goal is through the use of a trust, in which assets are held under the control of a trustee. The surviving spouse is entitled to the income from the trust, plus principle under certain circumstances. On the death of the second spouse, the corpus of the trust is distributed according to the original intention of the couple. This type of trust is sometimes referred to as a QTIP trust (“Qualified Terminal Interest Property Trust”). Other techniques include the use of irrevocable joint living trusts, and agreements to make wills.
Be Mindful of Spousal Rights
Most states provide surviving spouses with an “elective share,” pursuant to which a minimum of the estate must be left to the surviving spouse , including assets held in trust. Any estate planning in a second marriage designed to protect the children of the first marriage must consider these elective share laws.
In community property states, the spouses need to consider that any assets acquired while living in a community property state will be community property – owned equally by the spouses, no matter how the asset is titled.