Money Moves For A Second Marriage
Remarriage is the triumph of hope over experience, wrote Samuel Johnson, the famous 18th century English essayist. People show the same optimism today.
“Still, a little advance planning can help you avoid problems,” said attorney Marty Shenkman of Teaneck, N.J. Among the items to consider:
Prenuptial agreement. These documents can spell out who will be responsible for which expenses after a marriage. They also can declare where each spouse’s assets will go, after death or divorce.
Your prenup might put a limit on what will go to your new spouse. Such a provision may protect some of your assets, for yourself and for children from a prior marriage.
“For a prenup to be valid, both spouses must have an attorney,” Shenkman said. The lawyers should be independent of each other.
A prenup can be overturned if one spouse was not adequately represented. Or if assets weren’t disclosed.
Undue pressure also might cause a prenup to be thrown out. That might occur if one spouse is asked to sign an agreement right before the wedding.
So a prenup should be negotiated at least several weeks in advance of the ceremony.
But asking your spouse-to-be to sign a prenup can be awkward. One strategy is to point out that you’re acting on the advice of your attorney, accountant, or financial adviser.
Emphasize estate planning and consider including some provision to protect your new spouse at your death. Also, downplay talk of divorce before you’re even married.
Principal residence. Among other assets, a prenuptial agreement can cover living arrangements. That’s particularly important if both prospective spouses own valuable homes.
The prenup can spell out whether one spouse will move into the other’s place. If the unused home is sold, will the sales proceeds be divided, held jointly or go to the current owner?
If one partner will move into a home now owned by the other, should that family home be held jointly or kept in one person’s name? Such questions can be addressed in a prenup.
“If title is changed to joint ownership with right of survival, the surviving spouse automatically will inherit the home,” Shenkman said. Then the original owner’s children won’t inherit what they might consider a family home.
QTIP trust. This stands for qualified terminable interest property. QTIP trusts can provide for your new spouse. After your death and your surviving spouse’s demise, they can also help other beneficiaries, such as your children from a previous marriage.
Say you are older than your remarriage partner. You have substantial assets.
You might die first. At that point, preselected assets could go into a QTIP trust. Like all QTIPs, this trust will pay lifetime income to the surviving spouse, Shenkman says.
That could be interest and dividends from trust assets. Another way you could set up a QTIP is to pay a specified percentage of trust assets to the survivor.
If you wish, you can draft a trust to give the trustee discretionary power to pay some of the trust principal to the survivor, in case of need.
No one else can benefit from any QTIP trust while the survivor is alive.
The spouse who creates a QTIP can be the trustee. But only for a QTIP that takes effect during his or her lifetime. He will need another trustee to step in after his death.
In any case, people rarely name themselves as trustees.
At the death of the second spouse, remaining assets pass to other beneficiaries. Those beneficiaries are typically named by the trust creator.
Often, beneficiaries are the creator’s children from a first marriage. That’s one way to provide for your new spouse as well as your children.
There can be tax benefits, too. If the above conditions are met, assets you leave to a QTIP trust won’t be included in your taxable estate. Any assets remaining in the trust won’t be subject to estate tax until the survivor’s death.
So estate tax can be deferred. The tax may be smaller, if the trust assets have been reduced.
Life insurance. A QTIP trust has advantages, as described. But there may be drawbacks, too.
Say a hypothetical John Smith remarries at age 50. His daughter Kelly is 22. Smith’s second wife, Alice, is 40.
Suppose John dies at age 80 and leaves most of his assets to a QTIP trust. Alice, then 70, might get income from the trust for 15 years.
In this scenario, Kelly will have to wait 15 years, from age 52 to 67, to inherit her father’s assets. There might not be much left for her, if the trust is depleted to pay medical expenses and nursing home bills.
To avoid such an outcome, John might buy insurance on his own life, payable to Kelly. If he buys this when he remarries, he will be relatively young and healthy.
Then Kelly can collect benefits at John’s death. She won’t have to wait until her stepmother’s death, to see if anything is left in the trust.
Will. You also will need a new will after you remarry. Your old one may not reflect your wishes. You might want to change beneficiary designations, too, for your life insurance and retirement accounts.