Estate Planning for a Second Marriage

Estate planning is an excellent tool for balancing interests and taking steps to avoid future pitfalls. Nowhere is that more evident than when we assist couple contemplating second marriages with blended families plan for the future.

Arthur and Beth have an interesting story; they met when they were kids and got married as they reached retirement age. Both of them had previous marriages and children, but after years apart, they reunited through the charity work they did in their 60’s after retiring from their original careers. While it took them a while to engage in the estate planning process, they both saw the benefit of an estate plan when it came to achieving their goals.

When Arthur and Beth combined their lives, they did so carefully, not wanting to worry their respective families about sudden changes. This meant that they clearly delineated who paid for what in their marriage, but also helped them to assess their financial situation and evaluate what the other would need in order to continue to live comfortably after one of them passed away. Neither wanted to find themselves unprepared because they had given up some aspect of their independence. This strict organization allowed us to create a plan that allowed each of them to know that the other would be cared and provided for if they were to pass away first and also know that their own children would be the ultimate recipients of their assets.

Mindful of the concerns their children might have of losing their potential inheritance, and aware that Michigan law provides a surviving spouse with specific benefits related to the deceased spouse’s estate, Arthur and Beth negotiated and executed a Prenuptial Agreement that provided that each gave up any rights to the others assets that might be available under Michigan law either in a divorce or at death. They did specifically agree that their respective Living Trusts would contain provisions that benefited a surviving spouse.

Both Arthur and Beth have their own Living Trusts, which are now the owners of the assets they previously owned individually. This means that when either of them passes away, their respective successor Trustee will only control those assets, and the surviving spouse (and his or her family) has no fear that he or she will lose control of their own assets. The two trusts are similar in that they each provide the surviving spouse with the right to receive distributions of the trust’s income and principal sufficient to cover the costs that the deceased spouse had paid during their lifetime. This ensures both Arthur and Beth that the death of their partner will not be more difficult due to a sudden financial change. However, bank accounts and bills are not the only part of Arthur and Beth’s assets that their estate plan addresses.

When they married, Arthur sold his home and moved into to Beth’s condominium. To ensure that if Arthur survives Beth he does not need to immediately look for a new home, we included a provision in Beth’s Living Trust that allows Arthur to continue living in the residence as long as he is alive and pays for a designated portion of the expenses. This benefits Arthur and protects Beth’s children by giving each guaranteed rights regarding the property. Under some circumstances we include a provision that gives the surviving spouse the right to require the Trustee to sell a residence and use a portion of the sale proceeds to purchase a new residence (in the name of the Trust) if the surviving spouse wishes to move. Arthur and Beth did not opt for this level of complexity in their planning, knowing that if Arthur choose to move he had sufficient assets from the sale of his home when they married.

When dealing with blended families it is also worth noting that the selection of Trustees and other designees may become more difficult, with children feeling slighted if parents omit them in favor of second spouses or the other spouse’s children. This situation often gives rise to distrust and insecurity, which can threaten the implementation of even the best planning. To address these concerns with Arthur and Beth we took an approach that provided everyone with a bit of responsibility and accountability.

During their lifetimes Arthur and Beth named each other as Co-Trustees of their respective trusts, making it clear to their children that they had the utmost trust in their new partners. After the death of either of them, the surviving spouse will serve as a Co-Trustee with one of the deceased spouse’s children, but in the event that there is a disagreement between the surviving spouse and their Co-Trustee, the spouse retains the authority to act without the Co-Trustee’s consent. This allows the deceased spouse’s children to have a hand in the management of their parent’s trust and have insight into the use of the funds that will eventually pass to them, but does not overly burden the surviving spouse by requiring them to “beg” their late spouse’s children for funds.

Arthur and Beth provide good insight into a blended family that works well together and in the end is likely to implement their planning with little trouble. They also are an example of how with proper planning it is possible to provide for loved ones and charities in a more advantageous manner. Our next blog will address this aspect of their planning in detail but as you can see, the insight of experienced professionals can be the difference between peace and quiet and war and peace when it comes time to administer an estate plan.

Matt and Al