Divorce, remarriage, and blending families are treacherous enough waters to navigate, let alone wondering if all sides of your family will get along when you die. Those are all critical junctures to update your estate plan, whether it be a trust, a will, power of attorney, health care directive, or just beneficiary designations. If all aspects of your estate plan are current and updated, your wishes will be more accurately carried out.
Marital estate plans are typically set up with the surviving spouse inheriting everything and the children inheriting after the surviving spouse passes away. When couples divorce, a marital trust is usually defunded and dissolved by the divorce court or by mutual agreement. At that point a new estate plan for the single spouse is needed. That also means updating all of the beneficiary designations on your assets. If your life insurance or a brokerage account still has your ex-spouse as the beneficiary, they will get that asset on your death, regardless of the fact that you are no longer married. The court does not automatically change everything; it will not change your will, durable power of attorney, or health care directive. Unless you want your ex-spouse to be making all of those decisions for you, you need to update your estate plan and all of your beneficiary designations on divorce (or sooner!).
Most people do update their estate plans and change beneficiary designations after a divorce, but do they do it correctly after they remarry? Typically, people bring many more assets to a subsequent marriage then they did to their first, meaning there is a lot more to lose track of. That also means that it may be separate property that your new spouse is not necessarily entitled to and you want to leave it to your children. Keeping a separate property trust current, being specific and careful with a new marital trust, or having a pre- or post-marital agreement can help prevent any issues with your intent as to your where your assets should go when you die.
401(k) plans require that your current spouse be the beneficiary of your account unless they sign specific documentation that terminates their property rights. If you created your estate plan with retirement accounts in mind, meaning you did the math of how much money to whom using those accounts, you might want to redo the math in light of the fact that if you die, your current spouse gets all of your 401(k) and your children get nothing – assuming your spouse did not sign away their rights.
Joint accounts may also pose a problem. If you have a large brokerage or savings account and you put your new spouse on title so they can have access, they are now a joint owner with right of survivorship. This means that when you die, they get the entire account. If you wanted this account to go to your children, and maybe you had your children listed as payable on death or as beneficiaries, this will not happen if your new spouse is on the account and you die. Your new spouse can now change the beneficiary designation to whom they want. If you want to make sure that your new spouse has access to the account while you are alive, but does not inherit the account when you die, this can be done through a revocable trust and a durable power of attorney. All of this also applies if you have multiple children and you add one onto your account so they can help you with bills. Adding a person onto your account means on your death they get the account to the exclusion of your heirs. Utilize your estate planning attorney to make sure that your wishes are properly executed.
Your home or any real property is similar to a joint account. If you add a new spouse onto your deed because of a refinance or out of the kindness of your heart, they just might inherit the whole house when you die, leaving nothing to your children. It boils down to how you hold title with your spouse on the deed. If it is titled as “joint tenants”, “joint tenants with right of survivorship”, “community property with right of survivorship”, or “tenancy by the entirety”, then the surviving spouse on title inherits the whole property. This would also apply if you add one child, maybe the one living with you, onto the deed. They would get the whole house to the exclusion of any other children you may have. If you own the property with your new spouse as “tenants in common”, it means that you each own 50% and you can do what you want with your half. In order to avoid probate on your 50%, you would need to transfer it into a revocable trust that has beneficiaries named.
Wanting to incorporate a new spouse into all parts of your life, including finances, is very generous. But, do you want to include your new spouse to the exclusion of your children? A revocable trust is typically the best tool for blended families because they can be customized for multiple scenarios whereas standard beneficiary designations cannot be customized. Upon marriage, divorce, or remarriage, it is always best practices to update your estate planning documents and beneficiary designations, preferably on the advice and assistance of your estate planning attorney.
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