Approximately 40 percent of marriages these days are remarriages for at least one partner. When you remarry, there are all sorts of issues to consider related to your estate plan. For older people, the main focus may be ensuring that their adult children or grandchildren have an inheritance. Without proper planning, a new spouse could receive assets that were originally intended for children and grandchildren.
Here are some important elements to review in order to protect everyone’s interests when you remarry:
Consider signing a pre-nuptial agreement.
In Illinois, a surviving spouse may be entitled to 1/3 of the deceased spouse’s assets at death (or 1/2 if the deceased spouse leaves no descendants) even if the deceased spouse has provided differently in a will. If you don’t want this to happen, the best way around it is for your spouse to waive this right in a pre-nuptial agreement. Another way is to create and fund a living trust governed by Illinois law, which currently does not apply this “right of spousal renunciation” to assets in a trust.
You can also use the agreement to specify how your assets will be divided when one of you dies. Before you sign a pre-nuptial agreement, each party needs to make full disclosure of assets and liabilities and each person should have it reviewed by a separate attorney.
Check titling of your assets.
Who gets your assets when you die depends on how they are titled. A beneficiary designation (“pay on death to …”) or joint tenancy can override what you say in your will or living trust. If an asset is titled in joint tenancy with rights of survivorship, tenancy by the entirety or community property with rights of survivorship, it will go automatically to the surviving owner. That means you have to retitle the assets and update your beneficiary designation if you don’t want those assets to pass to the joint owner or to the pay on death beneficiary. Review the beneficiary designations on life insurance policies, retirement account assets (e.g., IRAs, Roth IRAs, 401(k) accounts), annuity contracts, and bank and brokerage accounts. Naming beneficiaries of retirement assets after remarriage can be complicated. For example, naming a “second” spouse as the primary beneficiary of retirement assets can “stretch out” the distributions (and payment of income taxes that result) over a period of years, but there may be nothing left for your descendants after the second spouse dies. We are happy to discuss options such as “standalone retirement trusts” with clients.
Update your powers of attorney.
Make sure you update your powers of attorney if you want to change your agent who can act during your lifetime. Your attorney can explain and help expand or limit authority granted to your agent in your power of attorney (e.g., authority to establish, contribute to, roll over, or change beneficiaries of retirement plan assets).
Put certain assets into a trust.
Many people who remarry provide in their will or living trust that certain of their assets will pass into a trust for the surviving spouse after they die. The trust commonly pays income and principal to the second spouse for the rest of his or her life based on need, and when that spouse dies, remaining assets will go to the first spouse’s children.
One caveat to creating a trust is if your new spouse is significantly younger than you are and could possibly outlive your children. In that case, it might be better to protect your children’s interest by buying a life insurance policy with your children (or a trust for them) as the beneficiary.
Consider buying long-term care insurance.
If one spouse requires expensive nursing home care, the other spouse may be legally required to pay for it. And few things can drain a child’s potential inheritance faster than paying for a step-parent’s expensive medical care. Long-term care insurance is a great way to solve this problem before it happens.