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SECOND MARRIAGES BRING CHALLENGES IN ESTATE PLANNING

The complexities attending second marriages often times require special attention, particularly if there are children from a prior marriage, significant age differences or medical conditions, or if one spouse has substantially more assets than the other.

Like most people, you may want to assure your new spouse is provided for in the event you pass away, but also wish for your assets to be handed down to your children from a prior marriage. Accompanying this is the desire to promote harmony between your children and new spouse.

Scenario:
Jane is a 62-year-old widow with three adult children. Mark is 71, divorced and has two adult children from his prior marriage. Mark is also in the early stages of Parkinson’s Disease. Jane and Mark decide to marry and want to buy a home in Yorktown, NY. Jane has $1.5 million in assets, and has her own whole life insurance policy with a death benefit of $1.5 million. Mark is entering the marriage with $500,000 in assets. Both Jane and Mark wish to provide for each other, but ultimately wish for their assets to be passed on to their children.

How To Title Assets:
One of the first decisions Jane and Mark will be confronted with is how to treat their assets after they are married. Assets and property held jointly, particularly as husband and wife, generally pass to the surviving joint account holder upon the death of the other irrespective of any dispositions in a will. The same is true of any beneficiary designations on bank accounts or life insurance policies. Since Jane and Mark wish for their assets to pass to their respective children, joint account designations and naming each other as beneficiaries would not be advisable. Similarly, when they buy their home, they may want to hold title as “tenants in common” as opposed to “tenants by the entirety” so that each has a divisible ownership interest in the home that may be passed to their children.

Should Jane and Mark have a Will?
Although every person should have a will, it is of particular importance in second marriages. If Jane dies without a will, then Mark would be entitled to the first $50,000 of her estate and the remainder would be split one-half to Mark and the other one-half to Jane’s three children. This would yield the unintended result of Mark getting $775,000.00 of Jane’s assets and Jane’s three children splitting $725,000 three ways. Jane’s life insurance proceeds would pass to the designated beneficiary named in the policy.

Spouse’s Right of Election:
Even if Jane had a will there could be unintended results. Absent a pre-nuptial or post-nuptial agreement, New York State law prohibits a person from disinheriting their spouse. A surviving spouse may exercise the “right of election” to receive 1/3 of the augmented estate of the deceased spouse even if they are left nothing under the will. Therefore, even if Jane’s will left the entire of her 1.5 million in assets to her three children, Mark could still assert his right of election to receive $500,000. Mark’s “right of election” may also make him ineligible for Medicaid even if he otherwise implemented Medicaid planning strategies with his own assets. (Talk to an attorney about the specifics.)

Use of Trusts:
Utilizing trusts Jane and Mark can implement strategies that provide for the continued support of the surviving spouse during his/her lifetime, while still achieving their objective of having their assets ultimately pass to their respective children. For example, Jane can set up a trust that is funded during her life time or through a “pour over” will. The trust can also be named as the beneficiary of Jane’s life insurance policy. The income generated from the trust can benefit Mark for his life, and upon Mark’s death the corpus of the trust can be distributed to Jane’s three children. In light of Mark’s Parkinson’s disease, however, Jane may want to set up the trust in such a way that will not make Mark ineligible for Medicaid benefits.

As published in Westchester Senior Voice – Fall 2016.

Fall 2016