Avoiding the Mess
The winter months, in addition to being a cold, grey slog, have the dubious distinction of “divorce season”. But there is a silver lining to every rain/snow cloud. Just as leaves will bud and flowers will shoot up from the earth, divorce season turns to wedding season in the spring and love will bloom again.
However, tying the knot for a second time can also cause some complications, especially when one or more of the spouses has children from a previous marriage. One area that needs to be carefully managed is a person’s estate planning to make things are easy as possible for the family after you pass away.
“It’s very easy, without even doing anything out of the norm, to unintentionally disinherit your own children just through the normal course of moving on with life after divorce or after a spouse passes away,” said Chad Spencer, an attorney and counselor at law with the Hammond Law Group, which practices only in estate planning and elder law.
“When people get married, for the most part, they comingle their assets. Then, if they divorce or should the husband pass away and the wife get remarried, she does the same thing: comingles her assets. When she dies, without an estate plan or simply with assets owned in joint tenancy, her estate will pass to her new husband and, potentially, any children she had from her first marriage won’t receive anything. Even if she has a Will that names her children as beneficiaries, if the house and investments are owned jointly with her new spouse, her children will be disinherited when she dies. ”
This is a fairly innocuous scenario with extremely unfortunate results. However, there are other ways this outcome could occur, from irresponsible money management to malicious intent. The second husband could exhaust all of the assets or gift the assets outside of the first husband’s family. Or he could encounter bankruptcy, divorce, or creditor problems. He may simply have a falling out with the first husband’s children and convince his partner to leave them nothing.
If you are getting remarried or need other estate planning help, the Hammond Law Group is ready to help.
Ideally, these worst-case scenarios won’t happen to you, but they do occur regularly. That’s why it is essential to prepare for the future by establishing a comprehensive estate plan. By taking these steps, spouses can ensure that their partners are cared for and that their assets are allocated according to their wishes.
There is a misconception that a trust is only useful to protect against estate tax. Since paying estate tax is not an issue for most people, they often overlook the benefit of this valuable estate-planning tool.
“There are so many things that you can control or prevent with a trust,” said Spencer. “For example, if I want to ensure that children from my first marriage will receive at least 50 percent of my assets after I pass away, then I can establish a revocable living trust. When I pass away, that 50 percent share of the estate becomes an irrevocable trust where my kids are the beneficiaries. Now my current wife, as the surviving spouse, will have her survivors trust and her 50 percent of the estate while at least half of the estate is protected for my children.
“A lot of people think this requires separate trusts, separate plans, separate everything, but we can establish a joint trust that still keeps both spouse’s assets separate. The trust ensures that a surviving spouse is taken care of, but, after they are both gone or even after the passing of one of them, the assets pass to the desired beneficiaries. With the proper structure, it can be pretty clean to do it all in one, so it feels like a union instead of keeping everything separate.”
Other Estate Planning Tools
Trusts are not the only option. For example, people can add their adult children as joint tenants or joint owners on property. That way, when the first spouse passes away the property will go to the second spouse and then to the surviving children.
However, this can cause problems, because now that property is vulnerable to the real-life issues of those children.
“Let’s say I add my responsible adult daughter to a property as a joint tenant to avoid the house going to someone else. Then, a few years down the line, she files for divorce from her husband. That soon-to-be ex-son-in-law may be able to force the sale of that property and end up with a quarter of it in his own pocket,” said Spencer.
Wills are another common estate planning tool. Yet, there can also be unforeseen complications with simply trusting these documents to handle the distribution of your assets.
“Wills are separate and individual for each person. For a blended family, Wills have to be very specifically spelled out to say which assets go to the children and which assets go to a spouse. It becomes a little bit more complex because they are separate documents. For example, in my Will, I say everything goes to my spouse and then to my kids after that. Now, if her Will doesn’t include my children, suddenly my kids are left out. Even if her Will does include my children, she can change that after I’m gone. With a trust, assets are secure because the trust becomes irrevocable with respect to my percentage of the estate,” said Spencer.
In addition, even if your Will names your children as beneficiaries, if you own your home and other assets in joint tenancy with your new spouse, your assets will go to your spouse, not to your children. An estate plan goes beyond the legal documents. Coordinating the ownership of your assets with your Will or trust is vital to ensure your assets actually go to your intended beneficiaries, particularly in a blended family.
It is absolutely critical to discuss an estate plan with your spouse. However, it can be just as important to have a discussion about your plan with your entire family, especially with a blended family.
“We always encourage people to communicate with their families. You don’t have to disclose every aspect of the estate plan, but at least let them know that it is in place, why it was done, and the structure, so there are no surprises,” said Spencer.
“We see these issues that come up based on people not planning or planning with just a Will or getting married and not really thinking about how things are going to go – and they unintentionally leave a mess. With the proper planning, that can easily be avoided. Most people just want to make it as clean and spelled out as possible, so that it is easy and stress free for their families when they go.”
Visit the “Get Educated” page to discover more about Hammond Law Group and how they can assist with your estate planning.