Face it: estate planning is going to be one of the most complex things you’ll ever do in life. And if you were previously married, it only gets more complicated.
Unfortunately, many people put this off until later in life. However, the first steps should be taken as soon as a person starts to acquire assets, like buying a home or qualifying for a pension plan or building a stock portfolio. And it’s something that needs to be continually revised as life changes occur — a divorce or second marriage, dependent children, inheritances and unexpected circumstances like illness or job loss.
There are many benefits to solid and thoughtful estate planning. They range from reducing the tax burden on survivors to heading off potential conflicts between family members.
As many couples have learned, marriage isn’t necessarily “until death do us part.” That reality, in turn, can create a lot of thorny estate problems for all parties involved, says Konrad Malik, an attorney who specializes in estate planning. “If you remarry, sit down and revise your estate plan immediately, even if you have a prenuptial agreement,” Konrad Malik says. “For previously married couples, estate planning is crucial.”
Common Property — Drawing The Lines
While most married couples have joint accounts to pay expenses, sometimes it can be better to keep accounts in separate names if the situation is complicated by financial entanglements with a prior spouse: that person’s creditors could hold you responsible for their debts. “Creditors are not always bound by divorce settlements, so through default you could be responsible for an entire old debt,” writes estate planning and elder law attorney Mark Eghrari in Forbes.
If you have a 401K and named a past spouse as beneficiary, that could stick, even if you specify that you want everything to go to your current spouse in a will. It’s very simple to go back and update beneficiary designations.
Looking Out for Children and Heirs
Setting up a trust for your children can protect them in the event your spouse remarries after your death.
Trusts can also protect children from a previous marriage. If you die, do they have to wait for your current spouse to die or can they collect their inheritance right away? They could also inadvertently be disinherited, if the surviving spouse gets final say over jointly owned assets. A trust can spell all of this out in clear legal terms.
Never underestimate the potential conflicts that can arise among surviving family members without thorough estate planning. It’s become even messier with the rise in second marriages. “Don’t dent your legacy with tardy planning of your estate affairs,” writes Andrew Auld, certified wealth manager at Alexander Forbes Financial Planning Consultants, in BusinessTech.
Preserve Resources for Eldercare
What if one — or more — of your spouses needs long-term care? Many families have seen savings melt away when this happens.
There are strategies to protect assets from devastating life events. For example, there are specialized annuities designed to give the surviving spouse a guaranteed monthly income that won’t be factored in to an application for medical assistance. Irrevocable trusts can also protect savings in these situations.
Reducing The Tax Burden
Minimizing taxes is an important component of a good estate plan, Konrad Malik adds. “Trusts can be one good tool to minimize potential estate taxes. Irrevocable life insurance trusts can shelter life insurance benefits from estate taxes.”
In the end, a good estate plan is one of the best legacies you can leave to your family — especially if you have more than one.