A high percentage of widowed or divorced persons remarry. Each spouse may come to the new marriage with children of his or her first marriage. The new marriage may also produce children. Serious consideration must be given to the planning of parents’ estates in this complex situation.
Prior to entering into a second marriage, one should consider his or her own assets, and also those of the prospective spouse. If either party has assets of substantial value, it is wise to consider entering into a Pre-Nuptial Agreement. In such an Agreement, the parties agree that each retains his or her separate assets and waives the statutory estate and divorce rights to the other’s assets. After remarriage, each party’s assets continue in separate name. At the death of either, the decedent’s separate assets pass through his or her Will to his or her children and not to the second spouse who has sufficient assets of his or her own.
In the absence of a Pre-Nuptial Agreement, a spouse has automatic rights to a share of the decedent’s estate, which cannot be denied by Will. The spousal share is set by law as one-third of the value of the decedent’s estate, with some specific exceptions. The spousal share was created in law in order to prevent a spouse from being disinherited and left destitute on the public dole. The statute serves public policy but rarely matches an individual’s intentions. While this spousal share cannot be eliminated by Will, it can be waived in advance by agreement or at death by the survivor.
Once the second marriage takes place, and if no Pre-Nuptial Agreement exists, the spouses have two remaining means of planning. The first is immediate and concerns the status of titles. When the new couple is married, each has separate property and can maintain individual titles. Any assets in one spouse’s name alone will pass through the Will of that spouse. Although the surviving spouse may take the statutory one-third share, much of the separate property can pass on to the decedent’s other heirs.
Often each spouse brings property to the second marriage but sells, trades or exchanges it for other assets. For example, Vera, age 55, and Tom, age 58, each have two children; each also has a home worth approximately $80,000. Vera agrees to sell her home and the couple will live in Tom’s home after marriage. They marry, and Vera sells her home; receives $80,000 in cash and places it in a mutual fund jointly-titled with Tom. They live in Tom’s home until Vera dies some years later. The jointly-titled fund passes to Tom automatically as surviving spouse. Vera’s children get nothing. Tom has the house and fund and upon his subsequent death, his children receive all.
Even with a Pre-Nuptial Agreement, careful attention should be paid to joint titles and their consequences. A Pre-Nuptial Agreement can be useless if all assets are later placed. in joint names, as the survivor takes all as above.
The second planning device available is the Will. However, for the Will to affect property of the first spouse to die, that spouse must have property separately titled in his or her name in order to avoid the joint, automatic passage situation. As to property in decedent’s name, one-third may be elected by the spouse but the remaining two-thirds can be directed to the children of decedent’s first marriage. One favored plan is for decedent to establish by Will a trust with income to spouse for his or her life, but with the principal sum retained until the death of the second spouse, at which time the trust assets are paid to the children of decedent.
Special planning is also critical where the new marriage results in children. For example, Wally and Susan marry; Wally has two grown children and little assets, while Susan has no children and has $100,000. Together, they have two children, and also accumulate $60,000 in joint assets. Wally will likely wish to protect all four children equally, while Susan may favor leaving her separate property for her two children rather than benefiting the adult step-children. If Wally dies leaving the $60,000 in joint assets to Susan, her Will can provide for all four children, but she has the option to change the Will and might cut out the step-children. Both spouses’ Wills require special consideration in this instance, and it may be necessary to change the title on some of the assets to assure each spouse that his or her intentions will be carried out.
Each situation deserves careful scrutiny, and if early professional advice is obtained, more planning options are avai1able. Refusal or neglect to consider planning alternatives can result in a passage of assets solely to step-children via the spouse, with one’s own children effectively, although accidentally, disinherited.