Approximately forty percent of marriages are remarriages for at least one partner. When you remarry, you should review numerous issues related to your estate plan.
For older people, the main focus may be ensuring that your adult children or grandchildren have an inheritance. Without proper planning, a new spouse could receive assets that were originally intended for children and grandchildren.
Here are some important elements to review in order to protect everyone's interests when you remarry:
Check the titling of your assets.
Who gets your assets when you die depends on how the assets are titled -- not on what you say in your will. If an asset is titled as a joint tenancy with rights of survivorship, tenancy by the entirety, or community property with rights of survivorship, it will go automatically to the surviving owner. That means you have to retitle the assets if you don't want them to pass to the surviving joint owner.
Revise your beneficiary designations.
When a person dies, many retirement accounts automatically pass to the person's spouse, unless the spouse has signed a waiver or disclaimer. This is true even if the person's will and prenuptial agreement state otherwise. Be sure you know where your retirement accounts will go if something happens to you. You should also review the beneficiary designations on life insurance policies, annuity contracts, and bank or brokerage accounts.
Update your power of attorney and health care proxy.
Make sure you update your power of attorney and other health care directives if you want to change who you list as your agent. Also, make clear who you want as your guardian, which will make it easier for your new spouse or another relative to care for you if you become ill.
Put certain assets into a trust.
Many people who remarry provide in their will that certain of their assets will pass into a trust for the surviving spouse after they die. The trust will commonly pay income to the second spouse for the rest of his or her life, and when that spouse dies, the assets will go to the first spouse's children.
Oftentimes, such a trust is called a "Qualified Terminable Interest Property" trust or QTIP. One advantage of a QTIP trust is that all the property in the trust is treated as having gone to your spouse for estate tax purposes, so there is no estate tax on the assets at the time of your death.
In the trust, your spouse will likely want investments that generate income, while your children will favor growing the principal. It is important to specify how the assets are to be invested. Otherwise, you risk having your spouse and your children arguing about it. A possible solution is to create a "unitrust" that will pay the spouse a percentage of the total assets each year - that way everyone benefits if the assets are appreciating.
One caveat to creating a QTIP trust is if your new spouse is significantly younger than you are and could possibly outlive your children. In that case, it might be better to protect your children's interests by buying a life insurance policy with your children (or a trust for them) as the beneficiary.
Consider buying long-term care insurance.
If one spouse requires expensive nursing home care, the other spouse may be legally required to pay for it. Few things can drain a child's potential inheritance faster than paying for a step-parent's expensive medical care. Long-term care insurance is a great way to solve this problem before it happens.