Estate Planning: Remarriage Complicates Estate Planning

Jim Gianelli
By Jim Gianelli June 18, 2016 13:31

wedding ringsAs Frank Sinatra said, “Love is lovelier the second time around.”

What he didn’t say is that it sure as heck makes estate planning a lot more complicated – particularly when children are involved. With high divorce rates and record longevity, I’m asked to deal with questions about remarriage almost weekly.

So what exactly are the issues?

Let’s take a typical example: Bob, a 72-year-old divorcee, has two children and four grandchildren. Jane, a widow who is 70, has three children and six grandchildren. Each has a separate home and separate investment, bank and retirement accounts when they fall in love and decide to tie the knot the second time around.

Let’s also assume each has his or her own estate plan in place: a living trust, power of attorney and health care directives naming their respective children as beneficiaries, trustees, executors and health care agents. They come to me prior to the big day and ask my advice on estate planning.

First and foremost, I tell them that if they get married without changing their respective estate plans, the government will make one very important change for them. If one dies without mentioning the other as the spouse in the estate plan, the government will assume that the deceased forgot to mention the other by accident, and one-third of the estate will go to the survivor.

This is the default for failing to do anything, and it is usually not what either person intended. A simple amendment to the estate plan (the trust) after marriage will prevent this.

Second, if one of them becomes really sick, he or she could end up in a skilled-nursing facility at a cost of $10,000 a month. The one who is ill could be eligible for public assistance, but if he or she gets married, the other person’s assets count toward eligibility, a possible disqualifier for public aid.

Spending down one’s assets to qualify for public assistance gets more complicated when two spouses’ combined assets are involved. If the couple merely lives together without getting married (there is no common-law marriage in California), the sick one does not put the other’s assets at risk when qualifying for public aid. Sadly, this is an argument for not getting married the second time around.

Third, I advise each person to review his or her current estate plan. If the newlyweds want to leave everything as is – keep assets separate, leave all to respective kids, etc. – they still need to amend their trusts to state that they are now married and intentionally not providing for one another.

Even if the lovebirds intend to keep current plans in place, they likely will want to amend advanced health care directives and medical release forms.

If the couple intends to sell one of the homes and keep and live in the other, they may want to allow the non-owner spouse to continue living in the home after the owner’s death. This can be done in several ways: a life estate, a term of years, an occupancy agreement or a residence trust. Each has a specific purpose, and each provides that the heirs of the first to die will eventually inherit the house.

With retirement accounts, if one spouse intends to exclude the other from receiving proceeds, the new spouse must consent to any beneficiary other than himself or herself. Disposition of other assets can be planned in several ways, taking into account the competing interests of the new spouse and any children. The compromise is often an irrevocable trust with these conditions: upon the first spouse’s death, the surviving spouse is entitled to net income and perhaps principal for support until his or her death, at which time the first spouse’s children will receive the remainder.

Fourth, we talk about prenuptial agreements. This is usually a short conversation for seniors, since these are usually only necessary when a business, significant debt or significant wealth is involved. With baby boomers, this issue comes up more and more due to this age group’s complicated family issues – one spouse constantly bailing out his or her children, or a spouse personally guaranteeing his or her parent’s nursing home expenses.

In my experience, about one-quarter of second marriages end up doing pre-nups; the younger the couple, the more likely the need. The cost is substantial since both parties are advised to obtain separate counsel.

Last, should you involve your adult children in reviewing your estate plan, and if so, to what extent?

Children are seldom involved in the actual planning process – it’s important that the parents make decisions on their own without being unduly influenced by one child or another. But kids should be told what their duties and responsibilities will be when the time comes, as opposed to being surprised or shocked later at the roles each was assigned.

I tend to have a full-disclosure bias, but this depends on several factors and is very subjective with each couple. For example, when relations between the children are already strained beyond repair, discretion must be used when deciding whether to include them in decision-making roles or whether to select a close relative, friend or professional to make the financial and health care decisions.

Also, as is often the case, relations may be strained between a child and the new step-parent (funny how some children feel they should have been consulted regarding the new arrangement).

A final note: How complicated does planning get with third or fourth marriages? Or sixth marriages (the record among my clients)? The process is the same, but of course the more step-people involved, the more complicated it gets.

Jim Gianelli is a founding partner in Gianelli & Polley, gianellilaw.com.

Copyright © 2016 Friends and Neighbors Magazine

Jim Gianelli
By Jim Gianelli June 18, 2016 13:31
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