The Facts: I am divorced and getting married for the second time. I have two children. The woman I am marrying, Sally, is a widow with two children. All of the children are grown and living independently. We are both fairly well off and each have some investments as well as IRAs. Sally and I are planning on selling our respective houses and buying a place that we will own as tenants in common. The idea is that we will each pass our 50% interest in the house to our respective children in our Wills.
The Question: Are there issues relating to estate planning that we need to consider given the fact that we each want to pass to our respective children the bulk of our estates?
The Answer: Absolutely! Even for couples that do not have children, a second marriage always raises estate planning issues ranging from whether to sign a pre-nuptial agreement (a “prenup”) to whether to be laid to rest next to the first or the second spouse. It is important to discuss all the issues in advance and to take steps to ensure that there are no unforeseen consequences to saying “I do.”
Although some people do not think of a prenup as part of an estate plan, a comprehensive prenup not only addresses the distribution of assets in the event of a divorce, but also touches on whether the surviving spouse will exercise a right of election (the right to receive approximately 1/3 of a deceased spouse’s estate regardless of the terms of a Will), whether the surviving spouse will be presumed to be the administrator of the estate of the first to die and whether the surviving spouse will be able to enforce spousal rights to his/her spouse’s pension and other types of benefits. If you and your fiancé want to be sure that your estates pass to your respective children, it would be helpful to enter into a prenup.
With or without a prenup, people who are remarrying need to consider if and how they are going to provide for their new spouse if that spouse survives them. For example, it the couple jointly owns their primary residence as tenants in common, one thing to consider is whether the surviving spouse will be allowed to live in the primary residence until he/she passes. If the surviving spouse is not given the right to reside in the residence but wishes to do so, he/she may be able to buy out the children of the first to die. Absent a buy out, the residence will likely be sold and the proceeds divided between the surviving spouse and the decedent’s children. If the surviving spouse is given the right to live in the residence, the couple will have to decide if the surviving spouse will be responsible for paying the carrying costs of the residence. Another issue to consider is what happens to the household furnishings and other tangible property that the couple may have purchased together. If the property is owned jointly with right of survivorship, the surviving spouse will own the residence outright upon the death of the first spouse, and the children of the first spouse to die will have no legal interest in the residence. Clearly, there are special considerations when the surviving spouse is not the parent of the beneficiaries named in the decedent’s Will.
Putting aside the issues relating to real property, a second marriage also raises questions about the extent to which the first spouse to die wishes to provide for the surviving spouse. Because the assets passing directly to a surviving spouse decreases the amount of assets that will pass to the decedent’s children of the first to die, some people limit their support of their second spouse by placing some or all of their testamentary assets into a trust for the benefit of the surviving spouse during his/her lifetime. Upon the death of the surviving spouse, the balance in the trust can pass to the children of the spouse who died first. The terms of the trust can be very generous or can be such that the funds in the trust are only available for necessities such as medical care and support. Couples must engage in a balancing act when they decide how to provide for their surviving spouse while insuring that the bulk of their assets pass to their own children. An assessment must be made of the available assets of both spouses, as well as their wishes and needs.
This article first appeared in the February 9, 2012 issue of the Times Beacon Record Newspapers.
Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.