10 Steps You Can Take Today to Protect Your Child’s Inheritance
This guide will help you protect your child’s inheritance, so you can prevent future unintentional missteps.
For second marriages, estate planning will bring a new set of challenges that involve blended families and complex financial arrangements.
Each spouse may have children from previous relationships, or the new spouses may have children together. One spouse may have a substantial amount of assets in his or her name, and the other spouse may have almost none. When discussing your estate planning goals, we know that you need an attorney who will understand your circumstances and work with your family.
Blending a family and planning for the end-of-life process both present individual, specific difficulties. But, combining them both through second marriage estate planning is doubly challenging and often involves hurt feelings and divergent interests.
At Melone Hatley, P.C., our Virginia trusts and estates lawyer will work to resolve conflict and find a solution that suits your needs and those of your family.
What Virginia Estate Planning Documents Should You Review for a Second Marriage?
If you are remarrying, you will probably need to update your estate, and perhaps significantly so. Any documents that included your ex-spouse from your first marriage will need to be modified to remove them, while any documents that do not include your new spouse will need to see them added. Here are a few of the legal documents you should consider updating when you remarry:
- Living trusts (revocable trusts), special needs trusts, and other types of trusts for asset protection
- Wills
- Beneficiaries of life insurance policies
- Other beneficiary designations
- Retirement accounts such as IRAs, pensions, annuities, and 403(b) and 401(k) plans
- Joint assets
- Power of attorney documents
Your Virginia estate planning attorney can help you understand which documents should be updated to protect your new family.
Challenges Associated With a Virginia Estate Plan for a Second Marriage
A remarriage may create difficulties when you try to update your estate plan. Children from a previous marriage, in particular, may make creating an estate plan more difficult. Children are considered under intestacy law and family law to have certain rights as beneficiaries of the estates of their parents. The problems become especially poignant when the two families are not on good terms or when the asset values are wildly different between you, your former spouse, and your new spouse.
If you, for example, have property, real estate, money, or other assets that you owned before your marriage, and you want that to go to your existing adult children, but your new spouse has different ideas, problems can arise. When you marry, you may end up owning your family home in joint tenancy with your second spouse. If this is the case, when you pass away, your children will not get the property. Your new surviving spouse will, under the right of survivorship, get it no matter what terms you lay out in your will.
This is yet another reason why it is so important to seek guidance and legal advice from a qualified law firm that is well-versed in family law and estate planning. The estate law attorneys at Melone Hatley are ready to help.
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Depending on Your Specific Circumstances, We May Advise One or Several of the Following:
- Making annual gifts that fall under the threshold of taxable giving by the IRS
- Creating a joint title on property to provide for easier transfer of ownership
- Gifting an asset to freeze its value and reduce the amount of taxes paid after you die
- Forming a family LLC to transfer ownership of an asset to multiple parties
- Using a trust to transfer ownership and avoid probate
What is a Marital Trust?
There are benefits to putting assets into a marital trust. One such advantage is that these assets are only available to your spouse while they are still alive. Upon the spouse’s death, you control the funds. A marital trust can be a very beneficial part of your estate plan, allowing you to overcome some of the challenges that come with splitting loved ones and family members between two households after a divorce.
As a form of irrevocable trust, it also serves as a tax shelter, allowing you to transfer the deceased spouse’s assets to the surviving spouse without tax liability, as well as protecting assets from future spouses and creditors. When you die, the assets within the marital trust are not considered part of your estate. This helps to overcome the right-of-survivorship issues.
Another form of spousal trust is a Qualified Terminable Interest Property Trust, or QTIP. A QTIP enables the grantor (the person establishing the trust) to set up a trust for a surviving spouse but still maintain control of the assets within after the surviving spouse passes away. Any income generated from the trust goes to the surviving spouse to take care of them for the rest of their life. Sometimes, the principal from the trust can also be used in this way.
When the surviving spouse dies, the trust will be divided however the grantor specifies in the trust documents. These kinds of trusts are very useful to protect beneficiaries from a previous marriage. For example, the trust may contain the home of the couple and specify that the surviving spouse may continue to live there for life, but when they die, the property passes to the grantor’s children.
These kinds of trusts do not assess estate tax until after the second spouse dies. They can also help shelter the assets from gift and death taxes using marital deductions. To create a QTIP, you must make a special trust election on your tax return. As with all trusts, you will need to appoint one or more trustees to manage the trust. Your CPA and attorney can help you with this process. Once established, a QTIP is an irrevocable trust, so it is a good idea to be absolutely certain of how you wish the property within to be handled before completing the trust.
Other types of spousal trusts include spousal lifetime access trusts or bypass trusts. Each of these forms of spousal trusts carries its own tax benefits, and each has specific requirements regarding the use of the assets within. Your estate planner can help you determine which is best for you and your family.
Should You Sign a Prenuptial Agreement for Your Second Marriage?
Going into a second marriage, you may have some reservations. After the end of your prior marriage, you have seen that divorce can happen to anyone, and it’s likely that even the most mutually agreed-upon divorces can become acrimonious and contentious in some ways. Signing a prenup can help to keep your assets safe and give you peace of mind should the second marriage also come to a heartbreaking end. It can also protect your second spouse.
Prenups can include many clauses and protections. Some of the most common cover alimony and spousal support, agreements regarding separate and marital assets (your pension, for example, might be something you wish to keep separate), and how those assets that are shared will be divided in a divorce.
Every state has its own rules about what a prenup can cover. In Virginia, for example, prenups cannot address child support or child custody. Your family law attorney can help you draft a legal and binding prenuptial agreement that is fair to everyone.
How Do I Protect My Child’s Inheritance in a Second Marriage?
You will need to carefully create your estate plan to protect your child’s inheritance. If, for example, you have a child with special needs, a special needs trust can ensure that they remain comfortable while protecting their rights to federal benefits like Medicaid, health care, and eventual long-term care. A trust can also provide for nursing home care while protecting your assets from creditors and from a second spouse who may have ideas other than yours.
The right estate plan is essential to your peace of mind, to your family’s health and well-being, and to ensuring that your loved ones and beneficiaries receive the property you wish. The Virginia attorneys at Melone Hatley can help you create a solid estate plan or rewrite or revise your existing estate plan after a divorce and remarriage.
Double Down on Your Estate Plan
Revising an estate plan after a remarriage can be complex and confusing. If you are ready to ensure that your assets, from bank accounts to life insurance to retirement plans, real estate, and beyond, are distributed according to your wishes when you pass away, the estate planning lawyers at Melone Hatley are ready to help.
You may have documents you don’t even realize you need to revisit. The legal advice our law firm can offer will make sure that your plan is locked up tight, that everyone gets what they deserve, and that everything goes where you want it to go. We have years of experience dealing with estate planning, and we represent clients from across the state, from Fairfax to Richmond and all across the Virginia Beach region.
