Approximately six million couples got engaged this weekend, based on buying patterns and an American Express consumer survey. Some of these engagements will result in second marriages. Estate planning after remarriage can be complicated, especially when there are children from a previous marriage. By law, new spouses have similar rights to spouses of first marriages. Families, and children of the first marriage in particular, often do not see it this way. Most people think that a prenuptial agreement is the sole solution to this problem. However, spousal rights can complicate matters.
The February 2016 edition of Journal for Financial Planning had a great article, titled “Estate Planning Implications of Remarriage” that addressed this issue and ways to reduce or eliminate these rights, as well as other matters to consider.
There are a number of ways that a surviving spouse can place a claim on a deceased spouse’s estate:
- Almost every state allows for “spousal share”, which is a surviving spouse’s right to legally claim a portion of a deceased spouse’s estate, which ranges from 30-50% of assets. This often includes not only probate assets but the total sum of assets, including IRAs and trusts, which may have been left to someone else…such as children from a prior marriage.
- Homestead allowances, which vary by state, can allow for surviving spouses to continue to occupy the home for a given period of time, receive a specific value for the home and are treated as a priority claim against the estate.
- Some states provide for spousal support from the estate of a deceased spouse.
- Many states allow for a surviving spouse to have a priority claim over the married couple’s exempt property, which is all of their tangible assets. This may present a problem if this some of these assets are family heirlooms of the deceased spouse and later become a part of the surviving spouse’s estate.
- Under ERISA laws, a spouse must be the primary beneficiary of an ERISA defined contribution plan. This can often be a large portion of a deceased spouse’s assets.
- Most states have filial support laws that hold a spouse liable for long-term care costs. This would be the case even if those assets are protected by a prenuptial agreement. Similarly, the assets of a couple would be factored jointly in to Medicaid eligibility decisions for long-term care costs. Both spouses would be required to spend down their assets in order in order for the one spouse to be eligible.
- Without a will, a portion of a deceased spouse’s estate automatically transfers to the surviving spouse, despite the wishes or intentions of the deceased spouse. In New York, this amounts to half of the estate if there are surviving children, as well.
Luckily, there are also a number of ways that these rights can be reduced or eliminated altogether:
- Although not very romantic, prenuptial agreements are the first step in asset protection. ERISA plans also allow for waivers, however; this must be done post marriage to be effective or it will be enforceable.
- Beneficiary designations should be up to date.
- The use of IRA trusts allows the deceased spouse to better control the distribution of the IRA, allowing for the care of the surviving spouse during their lifetime and then for the remaining assets to be transferred to the deceased spouse’s family.
- Wills should be updated either immediately prior or after a new marriage takes place.
- Marriages can be voided after death in some states, including New York, for various reasons including mental incapacity.
- Irrevocable life insurance trusts can eliminate spousal claims on life insurance policies.
- Assets can be eliminated from the estate by placing assets in trusts and making lifetime gift
Estate planning after remarriage…and before… is critical to protect the interests of the couple and the couple’s family, and hopefully ensure a peaceful distribution of assets upon the death of a spouse.