Estate Planning Issues with Second Marriages

In my last article I discussed some of the legal issues associated with second marriages and a spouse’s need for long-term care. In this week’s article, I will discuss some of the legal issues associated with second marriages and estate planning.

I have been practicing elder law for almost twenty-five years now. In that time, in all likelihood, I have helped 15,000 or more clients with their estate planning needs. In the past five years, I have seen more married couples involved in second marriages (or living together outside of marriage) than I have ever seen in my career—many fold more.

Second marriages can pose issues for estate planning purposes. Let us assume the following facts:  Mr. Smith and Ms. Jones are married to each other. Both were previously married. Both have children from their first marriages—Mr. Smith has three children, Ms. Jones has two children. All five of the children are adults now. All of Mr. Smith’s children have children of their own (Mr. Smith’s grandchildren); one of Ms. Jones’s children has a child and the other one of Ms. Jones’s children does not have any children. Mr. Smith and Ms. Jones have been married to each other for twenty years.

Mr. Smith and Ms. Jones married when their children were already adults. Their children get along with one another, but the children did not grow up together. They consider themselves a family, but they do not have the ties of a family history that stretches back to childhood.

The couple owns a house together that they purchased during their marriage. They have multiple joint financial accounts (bank accounts, brokerage accounts). Each has a retirement account (IRA or 401(k)) of his/her own and each has a policy of life insurance insuring their respective lives.

The couple comes to my office. They tell me that they want me to draft a last will and testament, a financial power of attorney, and an advanced health care directive for each of them.  After some questioning, the couple tells me that they want to leave all of their assets to the surviving spouse. For instance, if Mr. Smith dies, he wants Ms. Jones to receive the entirety of his estate because he wants to ensure that Ms. Jones is financially secure.

After the death of the second-to-die spouse, the couple wants their assets divided evenly between their five children. If one of the children has predeceased them, they want that child’s share to pass to that child’s children; if the child does not have any children—as one of Ms. Jones’s children does not—they want that child’s share to pass to the other four children.

This is a very traditional Will. If Mr. Smith and Ms. Jones were only ever married to each other and if all of their children were from their marriage to each other, this is the type of Will I would expect them to have.

The first issue that I have to discuss with the couple is the fact that after the death of the first spouse, the surviving spouse will inherit all of the assets. If Mr. Smith dies, Ms. Jones’s will own all the assets. All of the assets will be her assets. If Ms. Jones’s dies ten years after Mr. Smith, Ms. Jones will have owned all of the assets for ten years before she died. During the ten-year period of time between Mr. Smith’s death and Ms. Jones’s death, Ms. Jones could do anything she wants with her assets.

Ms. Jones is free to change her Will to leave the entirety of her estate to her children only. Ms. Jones could gift her assets to her children. Ms. Jones is under no obligation at all to leave any portion of her estate to Mr. Smith’s children.

Another issue with Mr. Smith’s and Ms. Jones’s estate plan is the potential for New Jersey Inheritance Tax. The inheritance tax is a tax that is assessed against an estate based primarily on the relationship of the beneficiary to the decedent. A spouse does not cause inheritance tax. Neither a child nor a stepchild causes estate tax; but a step-grandchild does cause estate tax. So, for instance, if Ms. Jones dies and one of Mr. Smith’s children predeceased Ms. Jones, that stepchild’s one-fifth share of the estate would pass that child’s children—those children are the step-grandchildren of Ms. Jones. Leaving things to a step-grandchild would trigger an inheritance tax of 15% on the amount passing to the step-grandchildren.