- Start a family conversation about estate planning, including obligations to former spouses.
- Review and understand applicable state tax laws governing your assets.
- Estate planning in second marriages often involves balancing control over assets and tax consequences.
- Make sure your designated beneficiaries are consistent with your current wishes.
Tying the knot again can present some challenges, especially when it comes to planning how your estate plan provides financial support for "blended family" members from different marriages.
Start a family conversation
Before putting your estate plan in writing, talk with your spouse about your goals, how you hope to provide for each other, and to what extent you want to leave assets to your children. "Clarity up front is absolutely critical," says Rodney Weaver, VP Advanced Planning at Fidelity. Because an estate planning conversation with your spouse might be uncomfortable, consider including a trusted financial advisor or estate planning attorney "to facilitate the conversation and take the emotion out of it," says Weaver. Some topics to cover include:
Review plans from previous marriages
Review wills, trusts, and beneficiary designations "to understand how any of these arrangements might affect your plans moving forward," advises Weaver. For example, if you were contractually obligated through a previous divorce to keep your ex-spouse as beneficiary of a retirement account, you may not be able to update the beneficiary designation to your current spouse.
Have a solid estate plan
Once you're clear on your long-term planning goals, look at your assets and property to determine what's "yours," "mine," and "ours." How do you decide whether to commingle or keep separate the property you bring into a marriage? While it's a very personal choice, considering several factors could help you find clarity:
The way you own and register accounts in your blended family can go a long way toward clarifying your intentions and avoiding probate—the expensive, time-consuming, and very public process of administering an estate. For example, accounts owned as "joint tenants with right of survivorship" or "transfer on death" make the owner's intentions clear that in both cases the assets go directly to a party named on the account.
- Joint tenants with right of survivorship passes the assets directly to the surviving account owner.
- Transfer on death passes the assets directly to the party named as beneficiary.
- Read Viewpoints on Fidelity.com: Estate planning must-dos
Check your Social Security benefits
While you might be entitled to Social Security benefits based on your ex-spouse's work record, that could change upon remarriage.
Second marriage "to do list"
Update your beneficiaries.
Your ex-spouse may get some of your assets if you neglect to update all your beneficiary designations on retirement and life insurance accounts.
Put it in writing.
Spell our every detail in your legal documents on what you plan to leave your spouse and children from current vs. previous marriages.
Know state property laws.
Property acquired by either spouse prior to marriage may retain its character as separate property depending on which state you live in.
Spell our what's "yours," "mine," and "ours."
Make your intentions clear on which assets are to be indentified as "separate property" vs. "community property" of the couple.
Add a prenup.
Consider a pre/post nuptial agreement; your spouse may want to give highly valued assets to children from a previous marriage.
Be sure to review and, if necessary, update all your beneficiary designations on retirement accounts, life insurance policies, and so on. If you don't, warns Weaver, "Your assets could end up going to your ex-spouse when your intent was for them to support your current family." Also, think carefully about who you choose as beneficiary. You might automatically name only your new spouse, but when you die, your spouse can name anyone they want as the new beneficiary, possibly bypassing your children altogether.
Take similar precautions with property. The way a home is owned could affect how it passes upon death—if the home is not transferred as intended, unintended hardship could be created for a family, which may have to make plans to relocate.
Consider wills, trusts, and taxes
Use wills, or even "an instruction letter referenced in a will," to be very specific, says Weaver, even for seemingly small things like dividing up personal property. "Leaving your children to decide who receives something like a college ring could result in conflict among family members," he adds.
As an integral part of a carefully crafted estate plan, a trust holds assets on behalf of a beneficiary or beneficiaries and can specify exactly how and when the assets pass to the beneficiaries. For a blended family, trusts not only help facilitate the disposition of assets by detailing who gets what, but they can also "last for years—through the surviving spouse's lifetime, the kids' lifetimes, and for multiple generations," explains Weaver. What's more, because trusts tend to avoid probate, beneficiaries may receive assets more quickly than if the assets are transferred through a will.
For this reason, many parents use trusts to segregate assets for children from a previous marriage even before getting remarried. A will can even be drafted to provide for the "pouring of assets into 2 separate trusts—one for children from your previous marriage and one for your spouse or children from your current marriage," says Weaver. For blended families, certain types of properly established trusts can provide financial support for your spouse and still make sure something is left for your children. For example:
Consider tax consequences
Estate planning in subsequent marriages often involves balancing control over assets and tax consequences. Consider taking full advantage of your gift and estate tax exclusion, which lets you make gifts during your life or make transfers at death without paying federal gift or estate tax up to an aggregate of $22.8 million per couple (or $11.4 million per spouse).*
Portability is a feature of the federal estate tax system that lets a surviving spouse use the deceased spousal unused exclusion (DSUE) amount of their deceased spouse. This means that if you're the surviving spouse, under current law, you could potentially pass assets of up to $22.8 million* when you die, depending on your own gifting strategies during your lifetime.
But there's a catch: Only your last deceased spouse's unused exclusion amount is portable. That's an issue if your previous spouse passes away and then you remarry. If your new spouse dies before you do, they become your "last" deceased spouse and you can no longer use any unused exemption amounts from your prior spouse. Your attorney or tax advisor can help you assess planning options to help mitigate the impact that the loss of this exclusion may have.
Review and understand state estate taxes which typically have lower exemption limits than the federal estate tax.
Estate planning for second families requires a mix of many things—candor, communication, and very carefully crafted legal documents. Still, "While there can be some discomfort in talking about your estate plan," says Weaver, "there is great comfort in having a plan in place."