A second marriage can open doors to a fresh start, but it can also create estate-planning challenges that you should tackle before walking down the aisle.
The number of second marriages in the U.S. has nearly doubled in the last three decades to 42 million adults, according to Pew Research Center. Marriage do-overs often stir estate planning challenges for blended families that should be addressed early on.
"Memories fade and intentions change,” warns Derek Hamilton, a partner at Elser Financial Planning, Inc., an Indianapolis-based, fee-only financial planning firm. Planning ahead and looking at tough questions before saying “I do” can save hurt feelings and financial vulnerability down the road.
Grab the reins and get your estate plan in place. If you don't have one, state law will decide for you, and the results may be very different from what you intended. Laws vary from state to state, with different amounts directed to spouses and children.
Create a plan and be clear about who gets what, even if you don’t have a lot.
If your plan is to simply leave all your assets to your spouse outright, thinking that he or she will “do the right thing” for your children, think again, because you may have created an impossible situation. “If you want your kids to have something, make it so in your estate plan," Hamilton says.
"If you really want your son to have that classic Mustang, don't just say it, put it in your will. Many times I've heard, 'Dad wanted me to have this,' but Dad didn't write it in the will. Things can get ugly fast in a blended family," he says.
Fair and equal are not, well, equal concepts. "Aim for what is fair, which may not be an equal distribution,” Hamilton says. “If you combined your family with your spouse's later in life, treating all your children equally could be grossly unfair."
Couples in a second marriage with blended families can turn to trusts to distribute to the surviving spouse and your children as you intended. The trust can also be set up to distribute to children and even grandchildren after both spouses are gone.
But be careful about whom you choose to be the trustee. "This can be a recipe for constant strife and even litigation,” Hamilton cautions. “Consider instead selecting a bank or trust company to be the trustee. The price of a neutral professional can be well worth maintaining the family peace."
Beneficiary designations can get lost in the shuffle of remarriage, and if not handled, could turn out to be a secret disaster in the making. A large portion of a couple's assets may transfer through beneficiary designations on life insurance, IRAs, and other retirement accounts, in addition to jointly titled assets, which could include a residence and bank and brokerage accounts. Hamilton calls this the “hidden estate plan.”
“Make sure it fits with your actual estate plan," he says.
Be aware of the “spousal elective share” that’s on the books in many states. "Unless your spouse waived it in a valid pre- or post-nuptial agreement, he or she may have the right to receive one-third to one-half of your estate, depending on the state,” Hamilton says. If your plan is for your spouse to receive less than that, get an attorney involved.
Your estate plan is your legacy and should be treated with care. Take the time now to create a plan that will distribute your assets in the way you intend.
Ring up a TD Ameritrade Investment Consultant at 800-454-9272 or visit any of our 100+ branches to talk about financial goals.
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