Before you get remarried, you and your intended spouse should make a plan for the children and assets each of you are bringing to the marriage. Since you have already experienced a divorce from or the death of your former spouse, you certainly understand the importance of having a plan and making your wishes known to your family members.
Start With a Prenuptial Agreement
Most people think of prenuptial agreements as protection in case of a divorce, but that is not their only purpose. They can also dictate what portion of your assets, if any, will go to your spouse upon your death. Perhaps most importantly, these agreements offer the opportunity for you and your future spouse to think through and establish the financial practices you will follow during the marriage. For example:
- Will you have separate checking and savings accounts, joint accounts or both?
- Will your income be considered separate property or marital property?
- From which accounts will the regular living expenses be paid?
- How will your student loans or previous debt be handled?
- If one of you owns the house you will live in, how will ownership, mortgage payments and renovations be handled?
- If one of you owns a business, how will ownership be handled?
- If one of you owes child and/or spousal support to a former partner, will such support be paid out of separate property or marital property?
- How will expenses for existing children be handled, especially if one of you has adult children and the other has minor children still at home?
- How will you pay college expenses for your children from a prior marriage?
Revisit and Update Your Estate Plan
Once you have talked through the relevant issues and created a prenuptial agreement, you should create or update your estate plan to account for your new spouse and their children. This planning allows you to:
- Create updated powers of attorney for your medical or financial decisions.
- Review and make changes to beneficiaries on your retirement accounts, financial accounts and life insurance policies.
- Create or update your will, including naming new guardians for children and/or custodians for children’s assets.
- Create or update your trust, which is critical in remarriage situations.
Trusts Can Protect and Benefit Your Existing Children
Trusts are an excellent planning strategy when one or both of you have children from a prior relationship. With a trust, spouses can provide for each other and their existing and future children. Moreover, if one or both of the spouses have significant assets, trusts can be drafted to best utilize available estate, gift and generation-skipping transfer tax exemptions and reduce taxes due upon the death of each spouse.
Creating a trust can provide benefits and tax savings for your children, as well. Trusts can:
- Hold and protect important assets that will benefit your children, such as life insurance policies, business interests or large financial portfolios.
- Provide an income source for both minor and adult children, while protecting the assets from children’s addictions, bad spending habits, creditors and divorces.
- Utilize tax exemptions to protect your estate and the estates of future generations from large estate tax bills.
Most importantly, trusts can ensure that all of your loved ones — including your spouse and your children — are provided for. In marriages with children from previous relationships, parents must be careful to avoid accidentally disinheriting their children. This can happen if the first spouse dies and leaves all of her or his assets to the surviving spouse, and then the surviving spouse dies without leaving any of those assets to the first spouse’s children.
To avoid this fate, you can create a “sub-trust” for your spouse for her or his lifetime; this will allow your spouse to continue enjoying the same standard of living that both of you enjoyed during your joint lives. Then, upon your spouse’s death, your assets automatically pass to your children.
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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