Estate Planning for Second Marriages in Wisconsin With Children From Prior Relationships
Although second marriages are more common than ever, developing an estate plan can be challenging for many couples. One or both spouses might have children from prior relationships as well as an accumulation of wealth and assets.
While a prenuptial agreement can help sort out who gets what in a divorce, it is important to create a clear estate plan to control the couple’s financial affairs in case of death.
What if you are married but do not have a will?
Under Wisconsin law, when a spouse dies without a will (called intestate), the assets automatically go to the living spouse. However, in second marriages or where there are children from a prior relationship, property is divided equally between the surviving spouse and the deceased’s children (or grandchildren if the parent is deceased).
This is where things can get complicated and why a will is so important in second marriages. Disputes commonly arise about property division. Certain family members may have access to relevant financial accounts while others don’t. Lack of trust, greed, and disagreements in these situations can lead to damaged relationships among survivors and an unfair distribution of assets.
Death is not the only situation handled through a will. A spouse may become incapacitated mentally or physically and need long-term care. Estate planning tools like Powers of Attorney for healthcare and finances can address scenarios such as Alzheimer’s or a brain injury. Your will should name individuals who may make decisions on your behalf to avoid your spouse and children battling for control through the courts.
It is highly advisable, too, that couples in second marriages have a plan should both spouses die at the same time, especially if there are living children or heirs from one or both spouses.
With so many variables, what should couples consider when creating a will in second marriages?
- Children and grandchildren from prior relationships
- Children from previous relationships are a top consideration when planning a will if you are married to anyone other than your children’s biological parent. Are the children minors or adults? Are they still a financial responsibility or in school? Where will they live after you pass? You may need a plan as well as a trust fund for your children and/or grandchildren.
- Dependent family members with special needs or disabilities
- Family members with special needs must be addressed in a will. Depending on the extent of disabilities, you may need to plan for long-term financial support, housing, therapy and medical expenses for your child, grandchild, or family member for whom you are a guardian.
- Children from the second marriage
- Children from the current marriage may be significantly younger than those from a previous relationship. Therefore, they may need financial support for their education, healthcare, activities, sports, and general living expenses longer term compared to adult children.
- Dividing financial assets
- Do you have a 401K, pension, IRA, savings account, money market, mutual funds, or life insurance policies? Where do you want this money to go, and how will it be distributed? If you have children from a previous relationship, you may want your investments to go to them, at least in part. This should be clear through the beneficiary designations associated with those accounts as well as in your will. Be sure to update beneficiary designations as needed on all accounts.
- Dividing tangible assets such as homes, real estate or other valuable property
- Questions such as who gets the house and other valuable property should be answered in your will. Consider possessions like automobiles, vacation properties, land, boats, jewelry, collectibles, artwork, season tickets, family heirlooms, etc. Valuable assets that could be divided between your living spouse and heirs should be line-itemed in your will.
- Beneficiaries of benefits programs such as social security, pensions or veteran’s benefits
- If a spouse was previously married to someone else, there is a chance the first spouse could be eligible for social security or pension benefits, veteran’s benefits, or some employer-based support programs. Your estate planner should be notified about these potential benefits so he/she can best determine whether they are transferable and how best to handle the transfers to your current beneficiaries. Your attorney can also help you understand your rights if you’re the first spouse in these instances.
- Ownership in a family business in estate planning
- Do you or your spouse come to the marriage as owners of a family business? If so, it is the responsibility of the business to make it clear about transfer of ownership among business partners in the case of death of an owner. A Buy-Sell Agreement should be in place or an Agreement to Be Bound, and the spouse needs to be aware of the agreement prior to marriage. If no agreement exists prior to marriage, then a postnuptial agreement could be put in place to address family business ownership in case of death or divorce.
- Financial implications for the surviving spouse
- The surviving spouse in second marriages may need to be prepared for loss of income, especially if the deceased is the primary income provider. Additionally, one or both spouses may choose to give most of their assets to their surviving children. One way to offset loss of income is to set up a life insurance plan where the surviving spouse is the only beneficiary.
- Debt of spouses in second marriages
- Debt brought to the marriage by the deceased will be resolved with the settling of the estate before any other property distribution. In other words, if the deceased owed creditors, taxes, education loans, a prior mortgage or other form of secured lending, those debts may need to be paid before the surviving spouse or heirs receive assets. However, some assets are protected from creditors, such as a 401K, pensions and other investment accounts.
- Payment of current or recurring expenses
- Does a spouse have regular expenses that will not go away automatically should he/she pass? Items that can be terminated upon death such as memberships, online entertainment accounts like Netflix and any auto-pay accounts should be listed in your will so payments can be stopped.
- Child support and/or financial commitments such as paying for a child’s college
- A spouse may have prior financial commitments that would be eliminated at death, such as child support and variable expenses for his/her minor children. If you wish to continue these payments for the support of your children, these issues may be addressed in a will. A trust might be necessary for items like education of a child or grandchild or for living expenses for a child or other family member.
- Tax implications in estate planning for second marriages
- It is important to set up a will to create the most favorable tax scenario for your spouse or heirs. When combining assets and property in a second marriage, you may want to reformulate distribution of your assets through gifting, trust funds or other options.
- Accessing digital assets in an estate plan
- Digital assets include anything you do online that has a password and user i.d., and that may or may not have monetary value. Your investment and bank accounts, PayPal, Netflix, social media accounts, email addresses, and music or photography accounts would be considered digital property. Clearly note in your will who should have access to which accounts when you pass away.
- Care for pets in your will
- People bring pets to a marriage that the surviving spouse may not be able to keep. Have a plan for who should get your pets, and set money aside for care of your animals. Vet bills, food, daycare or dog walking expenses can add up quickly. Pet trusts can be set up if necessary. Whomever you choose to care for your pets should know this and agree to it before putting it in your will. A backup caregiver should also be named.
- Charitable gifting
- Be aware of your spouse’s wishes as they pertain to charitable gifting upon death. This can also be an important part of a tax planning strategy in your will.
- Choosing an executor of your will
- In couple’s estate planning for second marriages, each spouse may wish to have his/her own choice of executor, or the spouses might choose the same trusted individual. Be sure to ask the person you choose -- it is a lot of work. Name the executor(s) in your will, as well as how you wish to pay them (if applicable).
- Having a prenuptial agreement for second marriages
- A prenuptial agreement is recommended for most second marriages and may aid in the process of creating a will. If you are already married, you may create a postnuptial agreement.
Estate plans in second marriages, in summary
Wills for couples in second marriages are typically more complicated than for first marriages, especially when you have assets to be split among your spouse and children or grandchildren. Disagreements among family members can lead to probate litigation and cause financial fallout for all parties. Your estate plan should be clear and thorough to avoid problems.
In addition, you should update your will and beneficiary designations whenever circumstances change, such as the birth or death of a family member, when you experience significant financial gain or loss, or you move to another state.
To create an estate plan for yourself or a couple’s estate plan, contact the estate planning attorneys at Murphy Desmond in Madison, Janesville, and Appleton, Wisconsin.
September 24, 2018