Second Marriage Finances
Estate Planning in
a Second Marriage
Writing a Will
My fiancÚ (second marriage) and myself have been living together in my house for four years. He had his own rental house, which he sold in February. My house has also just been recently sold as we purchased acreage together. We are also getting married in August. I have two boys over 18 and he has two girls over 18. We combined both of our equities, but my equity was $100k more than his equity. Plus, I have a lot more money invested and in savings than he does. If I were to die first (or vice versa), we will be each other's beneficiaries. However, upon his death, how can I assure that my investments including my extra $100k will go to my kids and not his. What happens in ten years when the property value increases or decreases? If we were both to die together, would our children's inheritance be split equally? Should I leave my savings and retirement accounts to my kids and not to my husband? Concerning taxes, I know it's more beneficial to leave to your spouse than your kids. What should I do?
My suggestion would be to name your children as beneficiaries most especially on your retirement accounts since they could then be distributed over the children's lifetimes. This is much better for taxes. If you think of "yours" and "his" going to the respective children and some equalization allowance through your will for the extra $100K in the house which was yours provided for through your will, you start more even. After you are married, anything else should be willed to all four children equally. Be careful about personal possessions though. They sometimes cause more angst than financial ones. Again be mindful of their origin and sentimental value to your heirs. Sometimes it is better to give while your "eyes are open" and no questions can be raised. If love is paramount, you will do it right.
First, talk with your fiancÚ about what you both think is fair. Fair does not necessarily mean equal. As you stated, you are bringing more into the marriage than he is. If your money is coming from your family or your children's father, you can make a strong case for leaving it to your daughters but not to his sons. He may have other ideas. You should also think about what happens if one of your children dies before you do. Would you want their share go to their children if there are any?
Since estate laws vary from state to state, the fill-in-the-blank wills you can find on the web are only starting points. It's not a bad idea to download these and get your wishes down on paper. Both you and your fiancÚ should have separate wills. Once you have an understanding with your beloved, hire an the attorney to take those rough drafts and make sure your wills conform to your state's legal code. This will be much less expensive than if the lawyer has to start from scratch. Yes, it will cost some money now but save your heirs much more in the long run. Once heirs start wrangling in court, the legal bills will suck even a generous estate dry. The only ones who come out ahead are the lawyers.
Once you have the wills written and properly signed, let your children know the general terms of the wills. As you stated, they are all adults. You don't need to let them know how much money is involved as that will change over time. But let them know if there will be equal shares or not. You should do this while you are alive and can explain why you decided how to divide things. The hardest part will be starting this conversation with your kids at a time when everyone is relaxed.
J really needs to consult with an attorney on this one, since there are differing laws in each state that could make a difference in their planning. For example, if she lives in a "community property" state, she will need to be sure that there are clear records on what was owned separately prior to their marriage, as that will be treated differently than property/assets obtained after the wedding. While it may be tempting to try to save dollars and avoid a legal consultation, this is one situation where an attorney is essential.
To help save on the legal fees, J and her fiancÚ should sit down and discuss at length exactly how they want to handle these differences in their financial contributions to the marriage. If they don't have a clear discussion now, the attorney will need to spend a lot of (expensive, billable) time asking questions and gathering the information for them. In addition, it will be important for all concerned that these matters are resolved ahead of the marriage and that both J and her fiancÚ are clearly in agreement in the approach they decide to take.
In most cases, it is wisest to avoid bringing the kids into the discussions until after J and her fiancÚ have worked out the details and they have established their wills, pre-nuptial agreements, deeds, etc. in writing. Then they can decide how much detail they want to share with the kids.
Helen in Rochester, MN
In such a situation, we had our trust done by an attorney who specializes in such things. Took the emotionalism out of it for hubby and me and the kids know about it and think it's fair. Don't leave something like this to the amateurs.
Nancy in Santee
As a CDFA (Certified Divorce Financial Analyst), I see the aftermath of issues like these when they have not been dealt with properly prior to the marriage. I highly recommend that you speak with an attorney to look at the potential for having a pre-nup prepared by a family law attorney in your state. In addition, you have a lot of financial concerns and estate planning needs here and would advise that you seek an attorney who covers both family law and estate planning, as well as a financial planner in the process.
I am concerned about your wording when you say that you "combined" your equities. State laws vary greatly when it comes to matters of commingling funds. Some states say that once commingled, all funds become "marital property." However, since you are not married yet, there may be exceptions. If you are able to "un-mix" those funds back into each individual's accounts before your pending marriage, then you may have the potential to undo the damage that may be done. Again, check with an attorney in your state.
Moving forward in your new marriage, I would advise that you both keep your "separate" funds (those you brought into the marriage in your own name, those you inherit and those you are given solely in your name during the marriage) in separate accounts forever. Use a joint account to pay bills. Not only does this keep things clean in the unfortunate event that this marriage does not work out, but it also allows each spouse freedom to make choices with their money and prevents either from being at the mercy of the other for money. I hate to be the bearer of bad news, but 60% of second marriages and 70% of third marriages end in divorce. So go into this with your eyes wide open and be optimistic, but also be realistic.
As far as protecting your children, know that beneficiary designations usually over rule a will, so make your children the beneficiaries of all of your investments if you so desire, and have it in your will as well. You may want to consider using "Trusts" as a part of your estate planning to prevent your children from getting money in a lump sum that they may not be ready or able to handle so that it is spread out over time instead.
You ask what would happen if you both died. That would depend on if you have a will and what would be written in it. Without a will, a person is said to die intestate. This means that state laws prevail and your wishes are unknown so the state gets to decide for you. My recommendation is that everyone should have a will at a minimum. Again, an estate planning attorney can determine your individual families needs.
In addition, a good financial planner should be a part of your estate planning team to make sure that you are making wise financial and legal choices.
Give your new marriage the best chance for success by speaking openly and honestly about these issues with your new spouse-to-be before you get married and lay out a plan that protects both of you as individuals and for each of your children. This will lay a solid foundation for your new married life together.
My advice is for "J" to seek the advice of an attorney. I can tell you from first-hand experience that the best intentions don't always work out. My sister-in-law did not seek the advice of an attorney, but left all of her assets in a trust with the beneficiary being her husband. This was a second marriage. My sister-in-law had one adult son (23 years old) and the second husband had no children. She has since passed away and everything is now in the hands of her husband. They were only married for a few years when she died, and most of their assets were obtained during her 20-year marriage to her first husband (who also died at a young age). Her son now has nothing from either his mother or his father. His stepfather has everything. The stepfather's current intention is to have his stepson inherit whatever is left when he dies. However, the stepfather is only 55 years of age. I don't know if anything will be left for my nephew to inherit. There is also the possibility that the stepfather will remarry and want to leave everything to his new wife/family. This is heartbreaking to my family, as my nephew is a wonderful, hardworking young man who can certainly use any funds now. We can only hope that his stepfather will do the decent thing and give some assets to him now. Please consult an estate attorney so you will know that your wishes will be carried out.
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