Tax and Estate Planning | Blended Families | Second Marriages

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Blended families can create complex tax and estate planning issues.  With more children living in blended families, parents need to plan for short and long-term tax and estate matters. According to a  Marketwatch survey, approximately 63% of women are in a remarriage, which can create financial complications when it comes to tax liabilities. One challenge for couples is agreeing on inheritance for first and second marriage children.
How do you ensure that both your new spouse and children from a first marriage receive an inheritance if you die before your newly married spouse does? Who gets the house, your new spouse or your children? How will your new spouse survive financially if you choose to provide an immediate inheritance for your children?
You want to make sure that your children will not be disinherited if you leave everything to your  new spouse, who then wills the money elsewhere. Your simple reciprocal will may be fraught with risks that could cause your children to be disinherited.
Here are some solutions:
Pass your assets to a revocable trust agreement that is funded during your life through your will or beneficiary designations, or a combination. The trust is revocable at any time, so you can change your mind. On your death, the trust becomes irrevocable and would benefit your spouse and children.

  • You may invest the assets to make them income-producing and pay all the income to your new spouse for the rest of their lifetime, while preserving the principal for your children.
  • On your spouse’s death, the remaining principal of the trust goes to your children outright or in further trust.
  • You can name an independent trustee who will have the power to pay a portion of the principal to your new spouse if there is a need.
  • You can have your second spouse’s interest in the trust end upon remarriage.

Through proper planning, you can maintain control over your assets to prevent disinheritance of your children, while still providing for your spouse.
If you do not make specific arrangements, here is a broad look at what may happen to your assets, although this may vary with state law and other situations:

  • Your second spouse typically will be able to claim one-third to one-half of the assets covered by your will, even if it says something else.
  • Joint bank or brokerage accounts held with a child will go to that child.
  • Your IRA and 401(k) will go to whomever you have named as beneficiary. Contrary to popular belief, wills do not supersede these beneficiary elections.
  • If you want some other arrangement, you and your spouse must have a written prenuptial or postnuptial agreement that meets your state’s inheritance laws. You will need to change beneficiary forms.
  • If you own a house, you may still leave it to your children but give your spouse the right to occupy it for life. State law may govern this situation.
  • In many states, married people have a legal duty to support each other. If your second spouse eventually needs long-term care, their assets and yours might be tapped to pay the bills.

These financial issues merit consideration and may help resolve competing interests of your adult children and second spouse. As noted, state law can make a big difference in how your estate is handled. In the case of blended families, it is always wise to get professional help even when considering a second marriage.
Our estate and tax trust team has a wealth of knowledge in these areas. Contact Steve Buel and Jerry Miles to discuss your situation.

Need Guidance and Help?
If you need advice, give us a call and we will be happy to discuss your situation.