Remarried with Children – 4 Estate Planning Mistakes to Avoid
It’s no secret that divorce in the U.S. occurs in a large percentage of marriages. And that many people go on to remarry or get into serious relationships thereafter.
Then there is the issue of marriages ended due to the death of one spouse or the other, which further increases the numbers.
All of this can create serious issues when it comes to financial matters, especially when it comes to estate planning. Even more so when there are kids involved.
This article takes a look at some key issues to be aware of and mistakes to avoid for remarried couples with children.
Roman emperor and stoic Marcus Aurelius spoke famously on the changing nature of life, “Remember that man lives only in the present, in this fleeting instant; all the rest of his life is either past and gone, or not yet revealed.”
He was right then and remains so now. Obviously life is always changing. And as it does so we in turn must react and adapt.
One big area of change for many people is that of whom we choose to live our lives with.
According to Divorce.com, in 2021 the U.S. had the sixth highest divorce rate in the world, with between 40 and 50-percent of all married couples filing for a divorce. This included 2nd and 3rd marriages, both of which categories had higher rates of divorce, respectively.
In fact, the number of adults aged 55 to 64 who had divorced at least once across both sexes was about 43-percent, according to the U.S. Census Bureau.
And when it comes to statistics regarding men and women after the death of a spouse, the National Center for Biotechnology Information (NCBI) estimates that 61-percent of men will marry another spouse or get into a romantic relationship after being widowed for 2 years. For females that number is approximately half.
There is also the additional issue of children in our marriages.
The U.S. Census Bureau reports that in 2021 approximately 17.8-percent of the 130 million U.S. households headed by married parents had children under age 18 (that figure has steadily trended down from more than 40-percent dating back to the 70s).
Given those statistics, no one can blame or even judge the actions taken by a person who has lost a spouse due to either divorce or death. No matter the reason, the end of a marriage is almost always a tragic event for all parties involved.
In many instances, remarriage can be a healing balm for the pain associated with such an occurrence.
Regardless, remarriage can bring with it added considerations and stresses. A big one is that of estate planning, especially when there are potential heirs involved.
When such is the case it can be very difficult to face, but you owe it to yourself and your loved ones to carefully consider what will happen with your money and possessions when you pass on.
With that said, it’s important to remember that you aren’t likely to please everyone with your decisions in terms of your estate. This is often truer when you have heirs from both sides of your blended family.
While you can never guarantee that everyone in the blended family will be happy with the arrangements you make, you can avoid the big mistakes.
4 key issues to be aware of and mistakes to avoid for remarried couples with children:
Failing to change beneficiaries
There are all types of financial institutions that offer accounts that are important in our daily lives, ranging from banks to insurance companies, and more.
Many of the financial institutions with which you have established an account in the past will have required that you provide a beneficiary designation. This is the person(s) you designated to receive the assets held in the account at the time of your passing.
In some states the beneficiary is designated by law, such as a current spouse, while in other areas and instances you have to ability to designate who will receive the assets. This can range from current spouse or partner, children and even entities, such as a charity.
The typical types of accounts generally requiring beneficiary designations can include joint banking (checking, savings or CDs), investment (brokerage), individual retirement (IRAs and annuities), work-related (401(k)s and pensions), property, and more.
Can is the critical word to be aware of, in that institutions won’t necessarily request or require a beneficiary designation depending on the type of account, your scenario at the time of account establishment (married or single), state mandates on spousal assets, etc.
Examples where there might not be a beneficiary requirement could include individual bank accounts, property you’ve purchased or inherited on your own, an investment account opened in your name with no spousal designation, etc.
An important distinction with accounts containing financial assets requiring beneficiary designation is the fact they are considered non probate, meaning such assets are generally transferred automatically upon your death (after verification) according to the beneficiary designation or contract.
While this is often helpful as the assets don’t have to pass through a court (probate) to end up being distributed, the beneficiary designation does often override a final will and testament, which can cause issues if the beneficiary designations have not been properly updated.
Unfortunately, when moving on from a marriage (due to death or divorce) it’s not uncommon for a person to forget to update their financial accounts. You have much on your mind and may not be ready or want to spend a bunch of time contemplating your loss or dealing with issues related to the individual you are now divorced from.
Time passes and then you remarry, at which point it’s natural to look ahead and not behind.
The bad news at that point is you might find yourself in a situation where you ex-spouse may still be the beneficiary listed on your 401(k), IRAs or a life insurance policy…or even your banking and investment accounts.
Were you to suddenly die and not have updated your beneficiary designations on your financial accounts, your ex-spouse could end up in control of those assets and keep your new spouse and even your kids (direct and step-kids) from controlling or receiving those assets you probably wanted them to have upon your passing.
The good news is this is generally an easy issue to address when done in advance. Contact all the institutions where you have financial accounts and let them know you wish to update the beneficiaries listed for the accounts you control.
One last thing to cover when updating beneficiaries is that of updating legal directives. A common example is a medical “power of attorney,” which designates who will be in charge of making medical decisions on your behalf in the case you are incapacitated.
Once again, you could end up in a scenario where an ex-spouse or other individual (or court) could be in charge of key medical decisions on your behalf versus your current spouse or a specific child in the case you ended up in such a situation.
Will is not updated
While updating your beneficiaries on your financial accounts is important, ensuring your “Will” is updated is also critical, as it is considered the foundational document upon which your estate plan is created.
A last will and testament should instruct who will be your executor (representative of your estate) and the manner in which you want your estate assets to be distributed, ranging from who will receive what, when they will do so, under which conditions (an example would be designating when a beneficiary, such as a legal minor, will receive any estate assets), in which manner, and more.
They can even cover last wishes, such as type of burial services, etc. If you decided you wanted to have a $10 million mausoleum constructed upon your passing and instructed such in your will, your instructions would have to be followed, even if your family felt this was wasteful and crazy.
Overall, your will is meant to guide your designated executor, dictating what is to be done with your assets. Outside of your non probate assets (previously covered), all other major or important assets (joint assets excluded) should be covered.
In turn your executor is tasked with working with a court through the probate process until the estate is completely settled in the manner dictated in your will, assuming such instructions are lawful.
Absent a will (or one properly updated) that conveys to a court exactly how you want your estate assets to be dealt with upon your death, you can lose the power to dictate what happens at your passing.
Drawn out legal battles can arise from such a failure. You’ve seen the movies and read about real-life situations where such scenarios play out. Family members fighting one another over the house, the money, a prized piano, the beloved pet, etc. Even outside people and entities getting involved, claiming you promised them something upon your passing.
Ultimately this type of scenario can result in considerable heartache and ill feelings (even tearing families apart), and from a more practical standpoint, create considerable expense to your estate and the very beneficiaries you wished to be provided for upon your death.
Having a properly executed and updated will ensures that doesn’t happen.
All heirs need not be treated equal
When it comes to remarrying with children involved, you need to keep in mind that you have options in terms of how your estate assets pass forward upon your demise. You may want your spouse to receive a certain percentage of the estate and all kids (your kids and your step-kids) to split everything else equally.
Then again you may not wish that to be the case, in which instance you have to spell it out in terms of who gets what.
Cutting family members out of the will is not uncommon. Whatever the reason, it is up to you to decide and to spell it out in your last will and testament.
When it comes to your heirs, there are lots of reasons you may wish to consider before making final determinations. Examples can include:
- You may want a family home to pass to your children versus your current spouse, or vice versa
- In general you may want to provide more to your child or children than to your current spouse’s kid(s), or vice versa
- If you brought more assets into your current marriage you may wish to pass on more to your children versus your current spouse or their children
- Dictating that an adult child or stepchild with a gambling, drug, alcohol, spending or other problem only receive a limited portion of the money you wish to pass to them over a period of time or set intervals to ensure they don’t quickly squander the money
- Excluding a child or certain family member from receiving any portion of your assets
- Wishing to cover the lifetime needs of a physically disabled or developmentally handicapped child or family member
- And many other scenarios
Obviously when it comes to such decisions it’s best to discuss your wishes with your current spouse. Both sides need to be aware. And if there is disagreement, come to a compromise (hopefully early on in the marriage) in order to avoid conflict, if possible.
Don’t miss out on gifting
If you are like many people, you may wish to see your loved ones and other beneficiaries enjoy some of the assets you intend to pass on to them while you are still alive. A well-constructed estate plan can help you accomplish this wish. You can do so through gifting, which can be accomplished without triggering expensive taxes.
For example, in 2023 you can gift up to $17,000 per child without triggering a taxable event. Your spouse can do the same, as well.
As such, you and your spouse could gift each of the five kids in your blended family $34,000 (the limits are set by the IRS and tend to climb over time – lifetime limits do apply), or a total of 170,000 in 2023 alone. With no taxes due to Uncle Sam.
As you’ve probably already surmised, making decisions relating to your assets upon your passing – especially what happens to them, who gets them, when, and under what circumstances – is no easy undertaking.
And it gets more difficult when it comes to families that are blended – multiple marriages and kids from one or both spouses. Without question, the larger the estate the more complicated it can get.
In such scenarios, it’s imperative that discussions take place in advance to avoid family squabbles and unnecessary issues and expenses. You definitely want to avoid potential pitfalls.
This should certainly involve the use of a qualified estate planner, and often an attorney, working together to ensure you avoid the common and more complicated mistakes that can arise when it comes to your estate.
A good estate plan can ensure your wishes are met and assets distributed in the most expeditious and tax efficient manner possible, saving your loves ones time, hassle and money when you pass.
We can work with you to address your estate planning needs, which in truth should be part of a holistic, comprehensive retirement plan. This includes creating strategies covering taxes, income, spending and legacy, customized to your family’s needs. A plan created with the goal of ensuring you have the best opportunity of living out the retirement you and your spouse envision.
If you are ready to take the next step and talk to a team of retirement planners who can advise on your estate and myriad other retirement issues, and who will put your interests first, Schedule a call today!
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