Trusts in Marriage and Remarriage

Redo Your Estate Planning Trust(s) Before You Remarry

The Use of Trusts in Marriage and Remarriage Especially Blended Families

The Benefits of a Trust in a Second Marriage

If you are getting remarried, you obviously want to celebrate, but it is also important to focus on some things that are less exciting like redoing your estate plan and seriously considering the creation of a trust. You may have created an estate plan during your first marriage, but now it will be more complicated–especially if you have children from your first marriage, more assets, or both. The following discussion includes some suggestions for ensuring your interests are protected when you remarry:

• Take inventory. The first thing you and your future spouse should do is take an inventory of your individual assets and debts and share it with each other. Don’t forget to include life insurance policies and retirement plans in your inventory. It is important to be open and honest about money if you want to prevent problems in the future.
• Decide how you want to handle finances. Once you know what your combined finances are worth and your liabilities, then you need to decide if you want to combine (or not combine) those assets when you are married. For example, if one spouse is selling a house and moving in with the other, will he or she contribute to the cost of the house? If one spouse has significant debt, you may not want to combine finances or make any joint purchases. These decisions need to be made upfront so everyone is clear on what to expect.
• Decide what you want to happen when you die. You and your future spouse need to figure out where your assets to go when you die. If you have children from a previous marriage, this can be a complicated discussion. There is no guarantee that if you leave your estate to your new spouse, he or she will provide for your children after you are gone. There are a number of options to ensure your children are provided for, including creating a trust for your children, making your children beneficiaries of life insurance policies, or giving your children joint ownership of property. Even if you don’t have children, there may be family heirlooms or mementos that you want to keep in your family. Again, open discussions can prevent problems in the future.
• Consult an elder law or estate planning attorney. Even if you don’t have a lot of assets, you should consult an attorney, especially if you have children. You will definitely need to update your will. You may also need to update or create other estate planning documents such as a durable power of attorney and a health care proxy. If you have significant assets, a prenuptial agreement may be appropriate. In addition, the attorney can help you decide if a trust is necessary to protect your children’s interests.
• Change your beneficiaries. You may want to change the beneficiaries on your life insurance policy, annuity, and/or retirement plan(s). If you are divorced, however, you may not be able to change some of the beneficiaries. Bring your divorce decree with you to the attorney so he or she can make sure you do not violate the property settlement agreement. If you can’t change your beneficiaries, you may want to buy additional life insurance or retirement plans that will include your new spouse.

The most important thing to remember is to be open and honest with your future spouse and your family members about your wishes.

Divorce and Estate Planning: The Importance of Correctly Naming Beneficiary Designation

What are the estate planning considerations in a second marriage later in life?

Many widows and widowers simply do not like living alone after their beloved spouse dies. As widows and widowers increasingly meet and decide to get remarried, they need to be aware of important estate planning considerations. As the life expectancy of people in the United States dramatically increases, the reality of second and third marriages becomes more likely. Widows and widowers are increasingly likely to meet and decide that a second marriage is an excellent way to avoid spending their aging years alone.

A remarriage can be one of the best parts of a senior’s life. However, a remarriage later in life often creates a unique set of legal questions. For example, many older clients take for granted that their adult children will inherit from them when they pass away. The reasoning behind this assumption is because the majority of their property and life have been spent with their previous spouse, who was often a co-parent to those children, and the one who helped to build or sustain the family assets.

However, a new marriage means that the marital property is governed by the laws of the new marriage. If there is no prenuptial agreement, then the surviving spouse will, under the laws of New Jersey, inherit at least one-third of the estate. This means that the adult children from the first marriage might be in for a rude awakening. A large part of the children’s inheritance might be “swallowed up” by the second spouse’s right to inherit one-third of her new husband’s estate.

The problems that are created by second marriages should not be taken lightly. It is important to talk these things through with your future spouse. Chances are, he or she also wants to make sure that adult children receive assets. If you don’t have a frank discussion with your would-be spouse, you may end up causing your loved ones a great deal of heartache and confusion as they struggle to figure out what would be best and what you would have wanted.

How to Effectively Use a Will and Trust for Second Marriages

Why Second Marriages and Blended Families with Step-Children Pose Unique Estate Planning Concerns

What Are the Elective Share Rights of my spouse and Why Should I Care if it Applies to my New Marriage? Hint! You Better Care!!!

If a spouse dies, then the surviving spouse may elect to claim a one-third share of his/her deceased spouse’s estate. This is called an elective share. Basically, a spouse can’t be totally disinherited. The surviving spouse has a right to his or her elective share. The only way that a surviving spouse can be completely disinherited is through a prenuptial agreement, where both spouses can agree to waive any claims to an elective share of each other’s respective estates.

Your estate subject to an elective share claim includes not only property in your name alone, but also most assets with beneficiary designations such as bank accounts, securities, IRA, 401k, your interest in jointly-held property, annuities, certain interests in trusts, the cash value of life insurance, and even property that you might transfer to a child during the one-year period preceding your death. In other words, you cannot easily ignore your spouse’s rights to his or her elective share. Many clients ask me how the surviving spouse will be able to claim his or her share if the assets are left in trust for a child. The answer is that the surviving spouse can file a probate proceeding and force the child to return the assets to satisfy the elective share obligation.

For more information about probate and estate administration, estate tax planning or estate/trust litigation, click here:

Why is it important to have a prenuptial agreement for a second marriage?

Due to an increased life expectancy, a 50% or higher divorce rate in the United States, and an increasing amount of second marriages, prenuptial agreements are now widely accepted. It is very important for individuals to approach the idea of a prenuptial agreement with an open mind. It must be emphasized that a prenuptial agreement does not mean that you are planning to get a divorce, or that you do not trust your new spouse. Instead, couples are now recognizing the seriousness of their upcoming commitment of marriage. Moreover, couples are now communicating their concerns for the future financial security of their close family members and relatives and are expressing their respect for the hard-earned assets and accomplishments of their future spouse.

Although many people look at a prenuptial contract as rather “unromantic,” the reality is that individuals in middle and later life are likely to have more significant assets than younger couples. Additionally, older clients often have important financial obligations in the form of alimony or child support payments from their previous marriages. In order to provide a solid foundation for their future marriage, clients should consider sorting through their finances. They should also create a plan for how they will merge their economic as well as their emotional lives.

No one should jump into the serious business of marriage. There are some very harsh consequences that can occur if a person does not carefully plan their finances. Life is not always a romantic experience. At this stage of life, single people should carefully prepare a detailed and comprehensive prenuptial agreement that addresses every aspect of their financial life, just in case…

Second Marriages and Financial Liability for Nursing Home and Long Term Care Costs

Beware… if you remarry, you cannot escape personal financial responsibility for the nursing home and long term care costs of your spouse regardless of a prenuptial agreement.  Federal law and NJ law clearly mandates that if you are married (even for one day) both spouses are jointly liable for the costs of long term care of the other until or unless divorced.  You may have amassed two million dollars before you married your second wife, but if she requires a nursing home at a cost of $11,000 per month, you are responsible for her payment to the nursing home, unless you divorce her in advance.

To learn more about second marriages and spousal liability for the long term care costs of your spouse, Click Here.

The Use of Marital and Non-Marital Trusts in New Jersey Estate Planning

There are four major types of trusts used in estate planning for a married client.  These trusts are: (1.) the marital trust, (2) the nonmarital trust, (3) the Q-TIP trust, and (4) the estate trust.  The marital trust, the Q-TIP trust, and the estate trust are forms of marital transfers, while the nonmarital trust is a form of a nonmarital transfer.

The Marital Trust

A marital trust consists of property transferred to a jointly owned trust while both spouses are alive but is then transferred again to the surviving spouse at death of the first spouse in further trust.  The surviving spouse can be named  as trustee to use this property for his or her own needs or can gift trust property to anyone he or she wants if permitted under the terms of the trust (ie. children, grandchildren, etc.) Alternatively this type of trust can limit a surviving spouse to just a lifetime income interest in the trust assets.  To learn more about this technique read the section called the “Q-Tip Trust or as I call them a “Rat Bastard” Trust.

As I mentioned in the preceding paragraph, a marital trust can also be written so that it only provides a stream of income to your surviving spouse for the spouse’s lifetime. The trust can also be written to allow the trustee to invade the entire amount of the trust corpus for the financial needs of the surviving spouse.

The primary feature of this trust is that the surviving spouse has control over the property.  This means that when the trust terminates, the corpus and all undistributed income are passed to the surviving spouse.  Your spouse will determine who receives this property when he or she dies.

A Non-Marital Trust

A nonmarital trust is often referred to as a “bypass trust” or “family trust.”   The nonmarital trust is funded with property transferred to the trust at the time of your death.  The primary characteristics of a nonmarital trust is that it gives you control over your trust property after your death.  The amount of property transferred to the trust is usually a dollar value ($$$) equal to the federal death tax exemption equivalent.  This means that the amount of assets, investments, savings, etc. placed into this trust at your death is exempt from New Jersey or federal estate tax liability.

A nonmarital trust can be written so that it provides a stream of income to the surviving spouse and/or other individuals you choose.  Many clients use this form of trust to provide income to both the surviving spouse and children.  Thus, you can establish a nonmarital trust to provide your surviving spouse with income for the remainder his/her life and, upon his/her death, the trust will terminate and the corpus and all undistributed income transferred to your children and/or named beneficiaries.

The Q-TIP Trust – A Clever Way to Deal with Your Spouse’s Next Spouse!

The Q-Tip trust is used when a person wants to provide a surviving spouse with a stream of income that will be paid for life.

This trust can distribute income to the surviving spouse for his or her life yet allow you to determine who receives the property when the surviving spouse dies.  The trust can be written to qualify for the marital deduction and as a consequence be included as an asset in the gross estate of the surviving spouse) even though the surviving spouse is only entitled to receive the income during his/her life.  I like this type of trust in second marriages or if the couple is younger or middle age.  It helps safeguard against the possible disinheritance or designation of trust principal in the event the spouse remarries.  If set up correctly, the “Rat Bastard” second spouse, doesn’t get all of your hard earned money.

The income stream on this trust must be distributed at least once annually.  The income from this trust can be paid only to surviving spouse and to no one else.  The surviving spouse cannot be the recipient of the trust corpus when the trust terminates.

I’ve raised some interesting options for you, haven’t I?

If you have any questions on the use of trusts when you remarry,

please feel free to contact Fredrick P. Niemann, Esq. I can be reached toll-free at (855) 376-5291 or you can e-mail me at fniemann@hnlawfirm.com

I welcome your call.

 

Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Trust Attorney

NJ Estate Planning Attorney serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County