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Estate Planning and the Second Marriage

“Marriage is the triumph of imagination over intelligence. Second marriage is the triumph of hope over experience.”  – Samuel Johnson

Hope does indeed spring eternal which may explain why approximately 75% of divorced people remarry. The National Stepfamily Resource Center reports that approximately 65% of these marriages will include children from previous relationships.

Before the wedding plans progress too far, the happy couple should temporarily interrupt their bliss to discuss the mundane and sometimes uncomfortable topic of wills and trusts – particularly when either or both have children. Planning issues vary widely depending on the ages of the husband and wife and the financial wherewithal of each. As the years march by, planning objectives will most likely evolve.  Arrangements regarding the couple’s estate plan are often outlined in a prenuptial agreement with contemporaneous execution of the appropriate documents.

Example: James and Karen, both widowed, reconnect at a reunion – rekindling their high school romance. After a few years of dating, they decide to get married. James has 2 grown children as well as a number of grandchildren with whom he is close. His healthy financial portfolio (close to $3,000,000) reflects years of hard work in his practice as well as a savings mentality. Karen was attracted to a career in public service because she loves to help people but didn’t think about lifestyle consequences when choosing her career path. Unfortunately, her bank account is virtually nonexistent and she lives paycheck to paycheck. She has no children.

James is head over heels in love and wants to make sure that Karen is taken care of financially in the event that he predeceases her. On the other hand, he wants to provide generously for his children and grandchildren. He is hesitant about leaving his estate outright to his beloved. What if he dies within a short period of time and Karen remarries? After all, James’ hard earned money could end up in the hands of some man that he doesn’t even know – if she remarries and names her new husband as beneficiary. Karen is particularly concerned about her ability to remain in the home (and to afford it) if he predeceases her. A number of creative plans can be designed to satisfy all objectives. The following represents only one possible solution:

Through his will, James establishes a life estate in the property for Karen’s benefit, giving his children a remainder interest. (An issue to address is whether the life estate terminates if an unrelated male moves into the property or if she vacates the property for a certain period of time.)  After calculating the amount that would allow Karen to enjoy a reasonable lifestyle, James purchases a life insurance policy naming either Karen or Irrevocable Life Insurance Trust (ILIT) as beneficiary. He devises the remainder of his assets to his children.

If James is not inclined to buy life insurance, he could set aside a portion of his estate in a Qualified Terminable Interest Property (QTIP) trust for Karen’s lifetime benefit with the remainder interest passing to his children. Under governing rules, Karen must be the sole beneficiary during her life and receive distributions of all income.  The trust document may allow for distribution of principal to her as well. The assets funding the QTIP are eligible for the unlimited marital deduction if James predeceases Karen and is included in her estate when she passes away. However, she has no power to name the beneficiary as James’ designation controls.

If you have questions about estate planning in the context of a second marriage, give us a call 856-281-3131.  We will be happy to discuss a variety of creative solutions.

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