Remarrying can soothe a painful heartbreak after losing a spouse through death or divorce. However, a second or third marriage carries specific challenges to estate planning that you should carefully consider, especially if you remarry with children. There are certain mistakes to avoid when planning your estate.
Many people do not update their estate plan following a remarriage, which can have unintended, but devastating consequences. In a worst-case scenario, children from a prior marriage can be shut out from an inheritance. Therefore, it’s important to consider how your money and possessions should be handled when you pass on and discuss your financial situation with your new marriage partner — and a law firm such as the Estate Planning Law Firm.
Reaching an estate agreement in a blended family can be a complex and evolving process. However, getting started on a framework should be a priority so that your children do not lose out on receiving an inheritance. To responsibly take care of your loved ones after a remarriage, here are five estate planning mistakes to avoid if you’re remarried.
Five Estate Planning Errors to Avoid if You Remarry
Error #1: Forgetting to Review Beneficiary Designations
One of the most common estate planning mistakes is forgetting to update estate planning documents to reflect changes in beneficiary designations. Failing to update beneficiary designations — the intended persons to whom benefits or assets of an account fall to after the account holder passes away — can lead to your assets passing in an undesirable way after your death.
Even though a divorce disinherits your ex-spouse from your estate, the beneficiary designations for other assets may remain and lead to your assets inadvertently passing on to them.
The bottom line is to regularly update your beneficiaries on your investment accounts, life insurance, retirement accounts, bank accounts, and pension, to avoid this situation. This way, you can be sure that your assets will be directly passed on to the intended person should anything happen to you.
Error #2: Failing to Ensure That Your Children from a Prior Marriage Are Protected
Even though there may be a mutual understanding that your new spouse will provide for your children from a prior marriage when you pass away, you should take active steps to protect them from unforeseen events and ensure that they’re not at risk financially.
One option could be to create a revocable trust, which allows an assigned trustee to manage and distribute assets to the designated beneficiaries after the owner’s death. This gives you the flexibility to meet the financial needs of both your children and your new spouse.
Another option could be to establish a separate marital trust, which segregates your and your spouse’s assets into individual trusts, rather than combining them into a joint trust. This enables you to stipulate that your assets pass on to intended heirs, such as your children from a prior marriage, or allocate funds for your spouse.
Error #3: Treating All Heirs Equally
In many cases, especially second marriages, prospective spouses are not financial equals. Why would you then treat all heirs equally? For example, say your new spouse moves into your house. If you were to sell that house, you might want your children to benefit from the proceeds rather than your spouse. And, if you brought more assets to the marriage, shouldn’t your children inherit more of your assets than your spouse’s children? In these situations, there is no rule that stipulates that all children must be treated equally.
There may be various reasons why you decide to treat your children unequally in terms of estate planning. If a child has a disability, you may want to create an estate plan that ensures that the child is cared for after you pass away. Other times, your children may have gambling issues, substance addiction, or compulsively spend money. In such situations, you may want to regulate the flow of money through a trust and appoint an executor to manage assets.
Error #4: Failing to Protect Your New Spouse
If you forget to update your will before you die, you might unintentionally disinherit your new spouse. According to laws in some states, after you die your assets pass directly to your children, rather than your spouse.
Family dynamics quickly change. Your new spouse and your children may not be on good terms after you pass away, which may leave your spouse with limited assets. To avoid this from happening, create an estate plan that distributes assets to both your children and new spouse.
Error #5: Waiting Until You’re Gone to Give
If you plan to pass on assets to your children, do not forget you have the option of gifting them now, rather than later through your will. This way, you can enjoy seeing your children use the money while you are still alive.
You can gift up to $15,000 per person without having to pay the federal gift tax. Furthermore, you don’t have to involve the Internal Revenue Service, as long as the gift is less than $15,000. In other words, if you have two children, one of which is married, you can give each child $15,000, or $30,000 to the married couple, without triggering gift taxes.
And don’t forget — the giving limit is per giver. This means that your spouse may also gift the same amount. So, if you and your spouse have two children, one of whom is married, together you can give each child $30,000, or $60,000 to the married couple, tax-free.
Prepare an Estate Plan For Your New Family
Every blended family has its own unique needs. There is no one-size-fits-all estate plan. Knowing these estate planning mistakes to avoid, the Estate Planning Law Firm has created an online tool to help you create a customized estate plan that’s right for you and your family. We provide three different estate planning packages ranging from $99 to $1,099 depending on the depth of your needs. They are crafted by our attorneys and customized by you. Take the quiz today and find the estate planning package that fits your needs, your life, and your new family.
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