Getting married for a second time following a divorce or the death of your first spouse can feel like a fresh start. But itâs important to consider how joining your life with someone elseâs may impact your financial plan, including how you manage your estate. What is fair in a second marriage and estate planning? It can be a difficult question to answer, especially when you or your new spouse are bringing children into the marriage or you plan to have children together at some point. Understanding some of the key financial issues surrounding a second marriage can help with reshaping your estate plan. So can consulting a financial advisor, especially one experienced in estate planning for second marriages.
Key Estate Planning Considerations for Second Marriages
Remarriage can bring up a number of important questions for estate planning. Both spouses should be aware of what the central issues are when updating individual estate plans or creating a new joint one.
Here are some of the most important questions to ask for estate planning in a second marriage:
- What assets will be left to each of your children?
- Do you plan to have additional children together and if so, what assets will be preserved for them?
- Which assets will you each continue to hold individually?
- Are there any assets that will be retitled in both of your names, such as a first home, vacation home or bank accounts?
- Are either of you bringing any debts into the marriage or will you incur new debts after the marriage?
- Do each of you have a will in place that needs to be updated?
- Or will you establish a new joint will?
- Besides a will, what other estate planning tools may be necessary, i.e. a trust, advance healthcare directive or power of attorney?
- Will you continue working with your current financial advisors or choose a new advisor to help you manage your financial plan together?
Asking these kinds of questions can help you each get a sense of the otherâs perspective on estate planning. Ideally, you should be having these types of discussions before the marriage takes place to minimize potential conflicts later. This can also help you decide if a prenuptial agreement may be necessary to protect your individual financial interests. But if youâve already remarried, it may be a good idea to have this discussion sooner, rather than later.
At the same time, it can also help to complete an inventory of your assets and liabilities so you both know what youâre bringing into the marriage. This can help with managing the distribution side of your estate plan later as well as planning for how any debts may need to be handled should one of you pass away.
Estate Planning for Second Marriages With Children
Having kids can add a wrinkle to your estate planning efforts when youâre getting remarried. For example, you may wish to leave certain assets to your children while your new spouse may want your assets to be equally distributed among his or her children as well as yours. Or there may be questions over who would assume control over assets on behalf of minor children should one of you die.
When there are children in the picture, itâs important to consider any provisions youâve already made for them in a will or trust and how that might affect any assets your spouse stands to inherit. You may need to update your will or set up a separate marital trust, for example, to ensure that your spouse receives the share of your assets you wish them to have while still preserving your childrenâs inheritance. Provisions may also need to be made for any children you plan to have if youâre still relatively young when a second marriage occurs.
Itâs important to consider the age of your children when deciding what is fair in a second marriage and estate planning. If you have adult children, for example, it could make sense to gift some of their inheritance to them during your lifetime. But if you have minor children, you and your new spouse would need to decide who should be in charge of managing their inheritance on their behalf if one of you dies prematurely.
Check Beneficiary Designations
Assets that already have a named beneficiary may need to be updated if youâre remarrying. For example, if you named your previous spouse as beneficiary to your 401(k), individual retirement account or life insurance policy, youâd likely want to change the beneficiary to your new spouse or to a trust youâve set up so that your former spouse canât collect on those assets.
You should also consider other assets, such as bank accounts or real estate, should be titled. Adding your new spouse to your home as a joint tenant with right of survivorship may seem like the right move for keeping things simple in your estate plan. But doing so means that if something happens to you, your spouse will automatically assume full ownership of the home. They could then do with it as they wish, regardless of what you might have specified in a will or trust.
Look for Gaps in Your Estate Plan
When deciding what is fair in a second marriage and estate planning, consider where the gaps might exist that could leave your assets in jeopardy. Not having a will, for example, could be problematic if you pass away. Without a will, your stateâs inheritance laws would be applied â not your wishes. That means your assets may not go to your children or other heirs as youâd like them to.
A trust can also be a useful tool in estate planning for passing on assets to your spouse or children as well as managing estate and inheritance taxes. If either of you are bringing considerable assets into a second marriage or you want to minimize the potential for conflicts over asset distribution later, setting up one or more trusts could be a good idea. Talking to an estate planning attorney can help you decide whether a trust is necessary and if so, which type of trust to set up.
Also, consider whether you have sufficient life insurance coverage to provide for the surviving spouse and any children associated with the marriage. Both spouses in a second marriage may need to have life insurance coverage, particularly if one person is the primary breadwinner while the other is the primary caregiver for children. Checking your existing life insurance policies and talking to your insurance agent can help you determine whether what you have is enough or if more coverage is necessary.
Finally, think about what you may need in terms of end-of-life planning. Long-term care insurance, for instance, can help pay for nursing home costs so that your spouse or either of your children arenât left in the lurch financially. An advance healthcare directive and a power of attorney can ensure that your wishes are carried out in end-of-life situations where youâre unable to make financial or medical care decisions on your own behalf.
The Bottom Line
Deciding whatâs fair in a second marriage and estate planning can be tricky and itâs important to get the conversation started early. Understanding what the biggest challenges of estate planning in a second marriage are can help you work together to shape a plan that you can both be satisfied with. And if you have adult children, itâs important to keep them in the loop so they understand how a second marriage may impact their inheritance.
Tips for Estate Planning
- Consider talking to a financial advisor about the implications of a second marriage and what it might mean for your portfolio. You and your spouse may choose to maintain your current advisors or find a new advisor to work with together. In either case, finding the right professional to work with doesnât have to be hard. SmartAssetâs financial advisor matching tool can offer personalized recommendations for professional advisors in your local area, in just minutes. If youâre ready, get started now.
- Trusts can be a useful estate planning tool for couples, including those who are getting married for a second time. A marital trust, for example, goes into effect when the first spouse dies. This can be helpful for passing assets on to a surviving spouse while minimizing estate taxes. You may want to create this type of trust, along with a second living trust set up specifically for your children, to manage assets more efficiently while also protecting them from creditors.
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