News & Insights

Estate Planning for Second Marriages
July 27, 2015
by Marcellus Lebbin


South Bend / Mishawaka, IN – While a second marriage may feel like a fresh start for many couples recovering from divorce or the death of a first spouse, second marriages contain a host of estate planning challenges, especially when it comes to distributing assets amongst a now “blended family.” Couples entering into second marriages frequently have children from different marriages and have different objectives when it comes to passing assets at death or divorce. Each spouse likely has assets that he or she brought into the second marriage and has at least some expectation that the assets accumulated during a previous marriage will endure for the benefit of the children of that marriage. Often times, spouses are concerned with providing for their surviving spouse, but not at the expense of disinheriting their children. Property given outright to a surviving spouse may never make it to the first spouse’s descendants, as it can be spent unnecessarily, mismanaged, or claimed by the surviving spouse’s subsequent spouse through divorce. Fortunately, with a well-constructed estate plan, it is possible to address these concerns.
Initially, both parties need to terminate old wills and powers of attorney and update the beneficiary designations of work-related documents, including life insurance, pensions, IRA’s, and 401K’s. This will ensure that any new estate plans are not complicated by the existence of old documents.

Constructing an estate plan in second marriages requires balancing control over assets and tax consequences. Careful estate planning can allow spouses to save money on estate tax, gift tax, capital gains, generation-skipping, and inheritance tax, by taking advantage of the tax exclusions available to specific transfers. Estate planning attorneys can work with couples to construct an estate plan and develop the best tax saving strategy for the couple’s blended family. Depending on the nature of a couple’s property and assets, and their plans for distribution in the future, some estate planning tools may be more valuable than others:

Prenuptial Agreements. A prenuptial agreement is executed before marriage to establish the financial and property rights of each spouse during the marriage and in the event of divorce or death. Prenuptial agreements are a good way to protect assets accumulated prior to marriage, to indicate which funds and debts belong to which spouse, and to arrange for children from a prior marriage to inherit particular assets. Additionally, prenuptial agreements can include disappearing provisions so that the longer the couple is married, the more intertwined their assets become. This allows the availability of financial resources to increase as the marriage matures.

Trusts. A trust holds assets on behalf of a beneficiary or beneficiaries and allows the settlor to specify exactly how and when the assets pass to the beneficiaries. When the surviving spouse needs the majority of the combined assets to live on, a trust can be a valuable tool. A trust can be set up to provide for the surviving spouse for his or her lifetime, with the residuary going to the first spouse’s children. A trust can also be set up to provide exclusively for the needs of an individual’s biological children, including living expenses, tuition payments, and medical expenses.

Wills. A will allows an individual to dictate who inherits his or her assets and possessions upon death in as much detail as he or she desires. It is also the critical tool to avoid becoming subject to State intestacy laws. Conveniently, as an individual’s circumstances change, his or her will can be amended to reflect current wishes. However, if a couple chooses to draft Mutual Wills–wills that mirror each other–it is important to recognize that the surviving spouse still has the ability to change his or her will and potentially disinherit the children of the deceased spouse.

Because of the inherent complexities in estate planning for blended families, it’s important that both spouses seriously consider their goals and wishes, and are well informed of the implications of their estate plan. Over the years, we have worked with countless couples to develop an estate plan for their blended family. If you are considering marriage for the second time and are ready for the peace of mind that your new spouse and your children from a previous marriage will be protected if something should happen to you, we would be happy to assist you with developing an estate plan that meets your family’s needs.